Australian Banks Report Sharp Drop in Home Loan Applications

Major Australian lenders are reporting a sharp decline in home-loan applications following a combination of Reserve Bank of Australia interest rate hikes and federal budget tax reforms targeting capital gains and negative gearing. National Australia Bank reported a 15 percent drop in domestic applications for the June quarter compared to the March quarter. Westpac observed a 10 percent overall decline in mortgage applications, while specifically noting a 20 percent fall in housing investor loan applications following the May budget.

Data from Barrenjoey indicates that investor home lending has fallen 35 percent in dollar terms since February, and first home owner mortgages have decreased by 23 percent from their peak. To counter this trend and attract customers, the big four banks have begun lowering interest rates on fixed-rate loans. Westpac has further loosened risk criteria by extending interest-only terms and reducing deposit requirements for some investor loans from 10 percent to 5 percent.

Beyond the housing market, National Australia Bank reported rising credit stress within its Business and Private Banking division. The bank noted an 8 percent increase in watch loans, particularly in the construction, transport, and storage sectors. The lender attributed this asset-quality pressure to supply-chain disruptions and geopolitical risks stemming from conflict in the Middle East. Despite these pressures, the bank's ratio of non-performing loans improved to 2.91 percent at the end of June.