By Scott Murdoch and Rajasik Mukherjee
SYDNEY, Aug 10 (Reuters) – Australia’s second-largest lender Westpac Banking Corp reported a 20% 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% 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% this year to 4.5% in 2027 and 4.4% in 2028, citing higher interest rates and policy changes.
Total housing credit growth would slide to 4.7% in 2027 from 6.8% 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% 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 and ANZ all down more than 2%.
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.
HOME LENDING UNDER PRESSURE
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% 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% over four months, according to data from property consultant Cotality.
The 20% 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 its mortgage applications had fallen 15% 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 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 ($1.27 billion) for the quarter ended June 30, down from A$1.9 billion a year earlier.
The bank said its core net interest margin was broadly stable during the quarter, while its lending and deposit books rose 2%, reflecting broad-based growth across the Australian portfolio.
Its common equity tier 1 capital ratio stood at 12.1%, remaining comfortably above regulatory requirements and providing balance sheet flexibility.
($1 = 1.4162 Australian dollars)
(Reporting by Scott Murdoch in Sydney and Rajasik Mukherjee in Bengaluru; Editing by Nick Zieminski, Chris Reese and Sonali Paul)
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