According to
realestate.com.au, new University of Melbourne research has identified a gap between standard mortgage rates and what financial-market funding costs suggest, a difference that could cost a borrower with a $500,000 loan about $170,000 in additional interest over 30 years if rates never change. On a $1 million loan, that modelled gap climbs beyond $340,000.
What the Research Actually Found
The study, covered by realestate.com.au, examined Australian mortgage rates from 1998 to 2025 and compared what banks charged customers against a model of their underlying funding costs. Researchers found a long-term gap of 1.46 percentage points, with the average mortgage rate over that period sitting at 6.9 per cent against a modelled funding-cost benchmark of 5.44 per cent. On a $500,000 loan, that translates to about $473 a month in additional repayments, rising to roughly $628 a month on Victoria's average new owner-occupier loan of $664,000.
University of Melbourne property professor Piyush Tiwari said complicated mortgage discounts made it difficult for homeowners to know what they should be paying. He attributed about 70 per cent of the gap to banks adjusting rates slowly when funding costs change, with the remainder reflecting lending risk and other costs. Limited banking competition, he said, could be contributing to the delay.
Related reading: REAStats property market data.
The findings land just as the Reserve Bank lifted the cash rate to 4.85 per cent on November 3, with the big four banks set to add another 0.25 percentage points to variable mortgage rates from November 13. For a household already absorbing that increase, a modelled 1.46-point pricing gap on top is a meaningful second hit — even though, as the researchers themselves caution, the lower benchmark rate is theoretical and not something a customer could actually obtain from a lender.
Why the Gap Persists — and What It Costs Borrowing Power
Zaralend director and mortgage broker Stephanie Jordan told realestate.com.au that borrowers who "set and forget" their loan can end up on a much higher rate than new customers with the same loan amount, and that some banks only offer their best discounts "when we threaten to leave the lender." Aqua Financial Services principal Daniel Hustwaite said some borrowers could not switch because they would fail another bank's lending assessment.
APF analysis of the modelled figures shows the effect compounds on borrowing capacity, not just repayments. Using the income figure in the research — a household earning $104,390 a year with repayments capped at 35 per cent of income — borrowing capacity falls from about $540,000 at the lower modelled rate to $462,000 at the higher one, a roughly $77,000 reduction in purchasing power. The study also estimated that buyers would need about $22,200 more in annual income to qualify for an $860,529 home, the equivalent of the $664,000 average Victorian loan plus a 20 per cent deposit. Under the researchers' main calculation, this pushed their measure of housing affordability down 14.3 per cent; a second method put the fall at 11.1 per cent.
It is worth stressing the caveats attached to this modelling. The researcher behind the analysis said the so-called "tax" is not a government charge or a proven bank profit, and the Reserve Bank has separately said average mortgage rates broadly followed cash-rate movements through 2026 — a different comparison from the university's funding-cost benchmark.
Where This Sits in the Rate Cycle
This research arrives at an awkward moment for borrowers. The cash rate has now moved to 4.85 per cent, and the coming 0.25 percentage point pass-through from November 13 means variable-rate holders face a double squeeze: the official hike, plus whatever gap exists between their bank's pricing and funding reality.
Borrowing capacity figures like the modelled $77,000 reduction also interact with deposit requirements. A buyer with a smaller deposit already faces the added cost of Lenders Mortgage Insurance; understanding how that stacks against a guarantor arrangement is covered in LMI vs Family Guarantee.
What Borrowers Can Actually Do With This
Prof Tiwari's central recommendation is practical rather than technical: borrowers need a clearer benchmark so they can challenge their lender directly. "Borrowers could see that if there is a significant gap, then there is a reason for them to ask the lenders why they are being charged such a significant additional amount," he said. For anyone who has not reviewed their loan in several years, that is the first concrete step — ring the lender, quote a competitor rate, and ask the question plainly.
A long-run gap of 1.46 percentage points between average mortgage rates and modelled funding costs — if it held for the life of a $500,000 loan — equates to roughly $170,000 in additional interest, rising past $340,000 on a $1 million loan.
The practical lesson extends beyond existing borrowers. Aspiring buyers calculating how much they can afford should treat advertised rates as a starting point, not a floor, and factor in both the November 13 variable-rate increase and the possibility that their eventual lender is pricing above its true funding cost. Research has identified a gap between standard mortgage rates and what financial-market funding costs suggest.
For borrowers assessing serviceability and deposit strategy more broadly, the LVR and LMI Explained guide is a useful companion to this pricing research, since both borrowing capacity and loan pricing move together when the cash rate shifts.
Reviewing a loan against current market offers — even a theoretical comparison — costs nothing and could save hundreds of dollars a month.
Further reading
This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only and does not constitute financial or property investment advice.
