Westpac mortgage applications fall 20% as tax changes bite

Westpac Banking Corp reported a 20% drop in mortgage applications after Australia's May budget tightened tax concessions for property investors, and forecast investor housing credit growth to halve to 4.5% next year.

"The undersupply of housing combined with population growth is expected to partially offset the impact of higher interest rates and recent Federal Government policy changes on the housing market," said Anthony Miller, chief executive at Westpac.

The bank said total housing credit growth would slide to 4.7% in 2027 from 6.8% in 2026, before recovering to 5.2% in 2028 on owner-occupied demand. Investor credit demand falls from 9.1% this year to 4.5% in 2027 and 4.4% in 2028, according to a bank presentation. Cash earnings were A$1.8 billion ($1.27 billion) for the quarter ended June 30, down from A$1.9 billion a year earlier. Core net interest margin was broadly stable, lending and deposit books rose 2%, and the common equity tier 1 capital ratio stood at 12.1%.

The decline is double the 10% drop Westpac flagged in the weeks after the budget, and rivals are feeling the same squeeze. National Australia Bank reported a 15% fall in mortgage applications last month. With the top four banks controlling more than 70% of the national mortgage market, the slowdown in home lending threatens a core profit engine just as Commonwealth Bank prepares to report full-year results Wednesday. Analysts expect CBA to post about A$10.8 billion in profit for the year to June.

Average monthly mortgage applications fell to 26,000 between mid-May and the end of July, the bank said. Stressed loans rose to 1.19% of total committed exposures from 1.16%, though the bank said they remained at low levels. Revenue grew 1% while operating expenses also rose 1%, and Westpac reaffirmed its target of A$550 million in productivity savings this financial year.

The Labor government's decision to scrap negative gearing and capital gains tax concessions for property investors has weighed on housing demand across the sector. The policy shift removes a key incentive that had driven investor participation in the Australian property market, where investor demand had been growing at 9.1% this year. Westpac expects owner-occupied demand to partially offset the investor retreat, but the net effect is a slower housing market through 2028.

The bank's lending and deposit books both expanded 2% in the quarter, with the strongest growth in its business loan portfolio. That divergence shows the shifting composition of Australian bank balance sheets as household credit demand cools while corporate borrowing remains resilient. Households remain under pressure from higher living costs, though business investment and overall customer resilience continue to support activity, the lender said.

For the big four banks, the housing slowdown arrives at a delicate moment. Mortgage lending has been the primary profit engine for Australian banks, and the combination of higher interest rates and reduced investor incentives is compressing new loan volumes just as competition for remaining borrowers intensifies. Westpac's guidance suggests the sector will need to lean more heavily on business lending and deposit growth to sustain earnings through 2027.

The housing market outlook will become clearer when Commonwealth Bank reports its full-year results on Wednesday, providing the first complete picture of how the tax changes have affected Australia's largest mortgage lender. If CBA's mortgage application trends mirror Westpac's, the sector-wide impact could be more severe than the initial 10% decline flagged in May.

This article is for informational purposes only and does not constitute investment advice.