Westpac reports 20% drop in mortgage applications after Australia scraps tax breaks

Australia's Westpac Banking Corp reported a 20% drop in mortgage applications following the Labor government's tax changes, which have dampened property demand. The bank predicted investor credit demand for housing would halve in the next two years, from 9.1% this year to 4.5% in 2027 and 4.4% in 2028. Total housing credit growth was projected to fall to 4.7% in 2027 from 6.8% in 2026, with a slight improvement in owner-occupied credit demand by 2028.

This outlook heightened concerns over Australia's banks, which have been benefiting from record property prices and reliable dividends. Analysts warned that banks face uncertain trading conditions, potential interest rate stagnation, and longer-term credit quality concerns. The poor outlook adversely affected competitors like Commonwealth Bank of Australia, National Australia Bank, and ANZ, with their shares declining more than 2%.

However, Westpac's shares have underperformed rivals due to concerns about its net interest margin, a key profitability indicator. Housing demand has weakened significantly since the tax concessions were scrapped, contributing to falling auction clearance rates and declining average prices, according to property consultant Cotality.

Nonetheless, Westpac CEO Anthony Miller noted that an undersupply of housing and population growth could somewhat mitigate the impact of higher interest rates and policy changes on the housing market. Despite a 20% drop in mortgage applications, Westpac reported cash earnings of A$1.8 billion for the quarter ended June 30, down from A$1.9 billion a year earlier.