ANZ retreats from mortgages as home loan demand falls 12pc

Mortgage demand is falling across Australia’s big four banks, with ANZ revealing the value of home loan applications has dropped 12 per cent since the May Budget.

ANZ’s headline application value was flat over the quarter after it joined the government’s 5 per cent deposit scheme in late March. Strip out that boost and it fell 5 per cent over the period.

Commonwealth Bank said on Wednesday that mortgage applications had fallen 15 per cent since May, while Westpac’s application run-rate is down 20 per cent from first-quarter levels.

NAB sounded the warning in July, reporting a 15 per cent fall in home loan demand over three months as Labor’s housing tax changes ran into higher interest rates and uncertainty from the Middle East conflict.

The decline has yet to flow through to ANZ’s existing mortgage book, which grew 2 per cent to about $355 billion as loans written earlier continued to settle.

“The fourth quarter housing drawdowns are largely locked in because they were originated sort of in the third quarter,” finance chief Farhan Faruqui told analysts.

Despite the gargantuan size of its home-lending business, Mr Faruqui said mortgages were not central to where ANZ wants its growth to come from. “I want to be clear: our ANZ 2030 strategy is not over-indexed on mortgages,” he said.

It is a significant call from Australia’s third-biggest home lender once the recently acquired Suncorp Bank is included, giving the group about 16 per cent of the mortgage market and well over one million home loan customers.

That scale makes the fight for new borrowers all the more important as demand retreats.

“We have also seen rising competition on mortgage lending over the last couple of months,” Mr Faruqui said.

The effect is already showing up in returns. Despite ANZ’s overall lending margin improving during the quarter, Mr Faruqui said its housing margin was “down a little bit” in July.

There are also signs of more borrowers falling behind, with Australian home loans at least 90 days overdue rising to 0.86 per cent of balances from 0.83 per cent in March.

ANZ said arrears remained below levels seen a year earlier, while broader credit quality was stable and non-performing exposures held at 0.55 per cent.

The picture is considerably stronger in business banking, where lending jumped 4 per cent during the quarter and June was a record month.

“On the business bank side, I think it was probably more on our own channel rather than through brokers that the growth came through in June,” Mr Faruqui said.

ANZ made a profit of $1.95b for the quarter while cash profit rose one per cent against the first-half quarterly average to $1.9b.

The result was weighed down by a $NZ125 million ($104m) provision linked to a New Zealand class action.

Chief executive Nuno Matos said the bank had continued to improve margins and business volumes, “including accelerating growth in business banking and returning home lending to system growth”.

Costs were also lower once the New Zealand provision was stripped out, keeping ANZ on track for $875m in gross savings this financial year and its target to cut full-year expenses by about 5 per cent.

Mr Matos said ANZ was still watching conditions closely. “We continue to watch the external environment closely across our network,” he said. “Our balance sheet and capital position remain strong, and we are staying close to our customers should they need support.”

IG analyst Tony Sycamore said the bank’s returns were “unspectacular” but showed the early signs of mortgage holders finding it “tough to keep up” with rising interest rates.