Australian homeowners are being urged to push their banks for a better mortgage rate, with growing competition between lenders potentially putting thousands of dollars back into borrowers’ pockets.

A sharp decline in new home loan applications has left banks scrambling for business, with tax changes and falling house prices spooking some Australians out of the property market.

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The slowdown is expected to increase pressure on lenders to offer more competitive rates as they fight to attract, and retain, mortgage customers.

Canstar Data Insights director Sally Tindall told Sunrise on Thursday borrowers should be aiming well below the current average owner-occupier variable rate of 6.25 per cent.

“Your mortgage rate should be a game of limbo. You want to go as low as possible,” Tindall said.

The lowest variable rate currently listed on Canstar’s database is 5.69 per cent, while 52 lenders are offering at least one variable rate below 6 per cent, including major bank Westpac.

Tindall said competitive mortgage rates should now “start with a five”, urging homeowners to negotiate with their lender rather than simply accepting their existing rate.

For a homeowner with $600,000 remaining on their mortgage and 25 years left on the loan, negotiating a 0.25 percentage point reduction could save about $92 a month, or almost $3,000 over two years.

Securing a 0.5 percentage point reduction would increase the savings to about $183 a month, adding up to almost $6,000 over two years.

The potential savings are even greater for borrowers who have not reviewed their mortgage for several years.

Homeowners who have stayed on the same loan for five years could be paying an estimated rate of about 6.97 per cent.

Refinancing to a rate below 6 per cent could potentially save those borrowers close to $11,000 over two years, even after allowing for more than $1,000 in switching costs.

However, Tindall warned homeowners to carefully check any fees associated with refinancing and make sure they are comparing loans with similar features.

Borrowers should also avoid extending the length of their mortgage when refinancing, warning doing so could “undo all the good work that you have already done”.

For borrowers who do not want the hassle of changing banks, Tindall said there was an even simpler option.

She recommended calling the bank and requesting a “rate review”, saying she had recently used the strategy herself.

“I did this just the other day, rang up. I said these two words: rate review. I would like a rate review. She said, I love rate reviews, knocked a little bit off my mortgage rate,” she said.

With banks increasingly competing for a smaller pool of borrowers, homeowners willing to make the call could find themselves in a stronger position to negotiate.