Westpac Sees 20% Mortgage Application Drop as Australia’s Property Market Feels Tax Changes

Australia’s second-largest lender, Westpac Banking Corp, has reported a sharp weakening in housing demand following changes to federal tax concessions for property investors. Mortgage applications at the bank fell 20%, while Westpac expects investor housing credit growth to slow significantly in the coming years.

The update added to concerns about the outlook for Australia’s major banks, which have benefited from strong property prices and a large mortgage market but are now facing pressure from weaker housing demand, higher interest rates and changing government policies.

Westpac’s shares fell as much as 5.9% after the bank released its third-quarter update on August 10, putting the stock on course for its largest one-day decline since April last year. Shares of rival lenders Commonwealth Bank of Australia, National Australia Bank and ANZ also dropped more than 2%.

Westpac forecast that investor housing credit growth would decline to 4.5% in 2027 from 9.1% in 2026, before edging down further to 4.4% in 2028. The bank also expects total housing credit growth to slow to 4.7% in 2027, compared with 6.8% this year.

A modest recovery in demand from owner-occupied borrowers is expected to lift total credit growth to 5.2% in 2028, according to the bank.

The weaker outlook reflects the combined impact of higher borrowing costs and recent policy changes. Australia’s Labor government has scrapped generous tax concessions for property investors, reducing incentives that had supported investment in the housing market.

The effect is already becoming visible in housing activity. Auction clearance rates have fallen to their lowest level in six years, while average property prices nationwide have declined by about 2% over a four-month period, according to property consultant Cotality.

Westpac said its 20% decline in mortgage applications was twice the drop recorded in the weeks immediately following the government’s announcement of the tax changes. National Australia Bank reported last month that its mortgage applications had fallen 15% over the preceding three months.

Australia’s four largest banks control more than 70% of the country’s mortgage market, making developments in residential property particularly important for their earnings. Home lending remains a central source of profit for the banking sector.

Westpac Chief Executive Officer Anthony Miller said several factors could help cushion the housing market from the effects of tighter financial conditions and government policy changes. He pointed to Australia’s shortage of housing and continued population growth as forces that could partly offset weaker demand.

At the same time, households remain under pressure from elevated living costs. Westpac said business investment and the resilience of its customers continued to support economic activity despite those challenges.

The latest housing figures also come against a broader backdrop of uncertainty for Australian banks. Investors have increasingly questioned whether the sector can maintain its strong performance as property activity slows and the prospect of further interest-rate increases diminishes.

Jarden analyst Matthew Wilson said major Australian banks appeared expensive and were confronting a difficult earnings environment, with potential declines in both lending volumes and margins as well as longer-term concerns over credit quality.

Westpac has also underperformed its major banking peers this year. Citi analyst Thomas Strong said investors were anticipating a slight decline in the bank’s net interest margin, an important measure of banking profitability, next year.

Despite the weaker housing outlook, Westpac’s financial results showed some resilience. Cash earnings for the quarter ended June 30 stood at A$1.8 billion, down from A$1.9 billion in the same quarter a year earlier.

The bank said its core net interest margin remained broadly stable during the quarter. Both its lending and deposit books expanded by 2%, reflecting growth across its Australian operations.

Westpac’s common equity tier 1 capital ratio was 12.1%, leaving the bank comfortably above regulatory requirements and giving it flexibility on its balance sheet.

The latest figures underline the growing pressure on Australia’s housing market and the banking sector’s dependence on property lending. While housing shortages and population growth may provide some support, Westpac’s weaker mortgage applications and lower forecasts for investor credit growth point to a more challenging period ahead.