Several lenders have withdrawn or scaled back their cashback home loan offers, in a sign that the intense level of mortgage market competition is not sustainable for some. According to the latest Mozo Banking Roundup, BankVic, Great Southern Bank, MOVE Bank and MyState Bank stopped offering cashbacks to new home loan borrowers last month. In addition, Heritage Bank changed its offer from A$3000 across the board to a range from $2000 to $4000, depending on the size of the loan. Regional Australia Bank also has a tiered cashback offer, with $4000 for loans above $500,000 and $3000 for smaller loans. These changes hardly spell the end of cashbacks. RateCity reported on April 6 that 33 lenders were offering cashbacks of as much as $10,000 to new borrowers and refinancers. But it might indicate that some lenders are pulling back from the intense competition in the market, which has been described as irrational, sub-economic and unprofitable. The biggest criticism of cashbacks is that they are being offered by lenders who tend to have above-average mortgage rates, so that borrowers will pay more in the long run. Such arguments are inconclusive, given that the average loan life is only three to four years. They have helped larger lenders regain market share. Mortgage aggregator AFG reported that in the March quarter its brokers lodged 61.8 per cent of their loan applications with major banks - an increase of 2.2 percentage points over the previous quarter and the highest share for the big banks since the June quarter in 2020. AFG chief executive David Bailey said the growth in share was driven by the big banks “continuing to benefit from lower funding costs linked to the government’s Term Funding Facility, a lag in passing on deposit rate increases to customers and the prevalence of sub-economic cashback offers”. While the most intense competition is in the market for prime owner occupier loans, lenders report that it is affecting other parts of the market as well. Ryan Gair, co-founder and chief executive of Rate Money said his business, which offers low-doc loans to self-employed borrowers, is down about 40 per cent this year because of the activity of larger lenders. Rate Money has originated around $6 billion of loans since it started in 2017. It is a mortgage manager, with funding primarily from Thinktank and also Resimac and Mortgage House. Gair said: “It is not as competitive in this space. There are five or six specialist lenders offering our type of loan but what we have seen is banks coming in and writing near-prime loans as if they are prime. “With the increase in securitisation funding costs, the spread for a low-doc loan has moved out to around 150 basis points. The banks want to hold their market share and they see an opportunity.”