Westpac says mortgage applications down 20pc since budget

By Elias Thorne · 2026-08-10

The number that leads the story

Westpac told the Australian Securities Exchange on Monday that mortgage applications have fallen 20 per cent since the May federal budget scrapped generous tax concessions for property investors, a decline the bank links to the policy changes and to higher interest rates.^[1] It is the first hard application data from a major bank since the budget, and it puts a number on how quickly investor demand responds to a tax signal.

The disclosure came in the bank's third-quarter update to the ASX, covering the three months to 30 June 2026, with the application decline measured from the budget's hand-down in May. Chief executive Anthony Miller pointed to the market's structural supports. "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," Miller said.^[1]

What the earnings result tells you

Westpac's third-quarter cash earnings came in at A$1.8 billion, down from A$1.9 billion in the same period a year earlier, placing the bank in a position of managing margin compression while its lending pipeline narrows. Both the lending book and the deposit book grew 2 per cent over the quarter, a rate of expansion that is positive but modest given the rate environment and population backdrop.

The A$100 million year-on-year earnings decline arrives at precisely the moment when the bank's forward guidance on housing credit growth is pointing lower still. A weaker application pipeline today feeds a thinner settlement book in six to twelve months, and that sequence puts the earnings trajectory under pressure.

How Westpac sees credit growth tracking to 2027

Westpac forecasts investor housing credit growth to roughly halve, from 9.1 per cent in 2026 to 4.5 per cent in 2027, easing again to 4.4 per cent in 2028.^[1] Total housing credit growth is expected to slow from 6.8 per cent to 4.7 per cent in 2027.^[1] Those two numbers together tell the structural story: it is the investor segment, not owner-occupiers, absorbing the heavier shock.

The investor credit forecast falling by almost half in a single year reflects how much of recent lending momentum was built on tax-advantaged property accumulation. Removing those advantages does not need to take effect immediately to change behaviour. The announcement itself is sufficient to shift investor calculus, and the application data confirms that shift is already underway.

Miller's reference to population growth and structural undersupply as offsetting forces is not without basis. Australia's net overseas migration has remained elevated, and dwelling completions have lagged approvals for several years running. Those factors support a floor beneath owner-occupier demand, but they do not offset the deliberate withdrawal of investor appetite, which is precisely what the budget reforms were designed to achieve.

What the May budget actually changed

The 2026-27 Commonwealth Budget, handed down in May 2026, introduced reforms to negative gearing and capital gains tax concessions for property investors, with the said aim of boosting home ownership across Australia.^[2] The policy intent was to reduce the relative attractiveness of investment property as a tax vehicle and redirect housing demand toward owner-occupiers.

The negative gearing and capital gains tax reforms will not take legal effect until 1 July 2027, yet the application data shows investors have already begun pulling back.^[3] That gap between announcement and implementation matters. Every basis point of the 20 per cent application decline recorded so far reflects a behavioural response to anticipated policy change, not the policy itself. If the legislation passes, a second wave of withdrawal is plausible when the measures actually bite.

The Treasury portfolio budget statements detail the mechanics of the changes, including the interaction between the revised negative gearing rules and the existing capital gains tax discount framework.^[2] The combined effect is designed to reduce the after-tax return on leveraged residential investment, particularly for investors holding multiple properties financed with interest-only loans, the segment most sensitive to both the gearing rules and the discount rate.

The industry read-across: NAB's 15 per cent and what it confirms

NAB separately reported a 15 per cent decline in mortgage applications over three months. Westpac's 20 per cent figure is the harder of the two readings published so far, suggesting the budget's impact on application volumes is not an idiosyncratic result driven by Westpac's specific book composition or distribution mix. Two of the four major banks have now reported directionally consistent data, and the magnitude at Westpac is larger.

The read-across matters because it narrows the range of innocent explanations. Seasonal variation, specific product repricing or a short-term marketing gap might account for a single bank's data. When two banks record similar directional moves of comparable scale in the same weeks, the most parsimonious explanation is the one both banks have given: investor demand reacted to the budget announcement. The question the industry is now sitting with is whether the pullback stabilises near current levels, or whether volumes soften further as the July 2027 implementation date draws closer and investor planning horizons shorten.

Miller's structural cushion argument carries more weight on the owner-occupier side than the investor side. Population growth and undersupply support prices and owner-occupier demand, but they do not generate new investor applications from buyers who have re-run the post-reform numbers and decided the return profile no longer works. Westpac's own forecast puts investor credit growth at 4.5 per cent in 2027, down from 9.1 per cent today.

Elias Thorne

Elias Thorne writes about interest rates, the bond market and the Reserve Bank. He is interested in what monetary policy actually does to household budgets, and in the long stretches of economic history that tend to repeat.