Westpac reports 20% drop in mortgage applications after Australia scraps tax breaks
CEO says housing undersupply and population growth to partly offset rate, policy headwinds
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[SYDNEY] Australia’s second-largest lender Westpac Banking Corp reported a 20 per cent fall in mortgage applications and forecast investor housing credit growth to halve next year, as the Labor government’s tax changes weigh on property demand.
Westpac’s shares fell as much as 5.9 per cent following the third-quarter update, and were on track for their biggest daily fall since April last year.
The bank projected investor credit demand for housing would fall from 9.1 per cent this year to 4.5 per cent in 2027 and 4.4 per cent in 2028, citing higher interest rates and policy changes.
Total housing credit growth would slide to 4.7 per cent in 2027 from 6.8 per cent in 2026, Westpac said in a presentation. It expected a slight improvement from owner-occupied credit demand to push total credit growth to 5.2 per cent in 2028.
The outlook reinforced investor fears that Australia’s banks, long buoyed by record property prices and favoured for their reliable dividends, now face an uncertain trading environment and the prospect of interest rates not rising again in the short term.
“The banks are fundamentally very expensive and confront a challenging earnings outlook of both volume and margin declines with credit quality concerns longer term,” Jarden analyst Matthew Wilson said.
The poor outlook weighed on Westpac’s rivals, too, with shares in Commonwealth Bank of Australia, National Australia Bank (NAB) and ANZ all down more than 2 per cent.
However, Westpac’s shares have underperformed its rivals this year, under pressure as investors forecast the bank’s net interest margin, a key gauge of profitability, could fall slightly next year, said Citi analyst Thomas Strong.
Housing demand has weakened substantially since the government scrapped generous tax concessions to property investors, a headwind for Australia’s top four banks as they control more than 70 per cent of the national mortgage market and count on home loans as a core profit engine.
Auction clearance rates have fallen to the lowest levels in six years and nationally average prices are down about 2 per cent over four months, according to data from property consultant Cotality.
The 20 per cent fall in mortgage applications at Westpac was double the decline it reported in the weeks after the government announced its tax changes.
Rival NAB said last month that its mortgage applications had fallen 15 per cent in the past three months.
“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 Westpac CEO Anthony Miller.
The lender said that households remained under pressure from higher living costs, though business investment and overall customer resilience continued to support activity.
Westpac reported cash earnings of A$1.8 billion (US$1.27 billion) for the quarter ended June 30, down from A$1.9 billion a year earlier.
The bank said that its core net interest margin was broadly stable during the quarter, while its lending and deposit books rose 2 per cent, reflecting broad-based growth across the Australian portfolio.
Its common equity tier 1 capital ratio stood at 12.1 per cent, remaining comfortably above regulatory requirements and providing balance sheet flexibility. REUTERS
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