Commonwealth Bank books $10.9b profit as mortgage demand plunges 15pc and hardship, arrears increase

Higher interest rates and Labor’s housing tax changes have put the brakes on home borrowing, with Commonwealth Bank mortgage applications down 15 per cent since May and investor demand plunging 28 per cent.

Australia’s biggest bank still banked a $10.87 billion annual profit, up 7 per cent, but warned higher repayments were crimping household spending and taking heat out of the property market.

Pressed on what had driven the mortgage retreat, CBA boss Matt Comyn pointed to worsening affordability, successive rate rises, global uncertainty and “yes... taxation changes”.

“Growth is slowing, with higher interest rates and inflation placing uneven pressure on household incomes and economic activity,” Mr Comyn said.

CBA holds a $680b mortgage book, accounting for roughly one in every four Australian home loans.

Higher repayments are biting hardest among 25 to 55-year-olds, who CBA said are now spending less on goods and services than they did five years ago.

Some are also eating into their buffers. Customers drew down mortgage offsets in the second half and CBA arranged 147,000 payment plans for struggling customers during the year.

Mortgages more than 90 days behind rose from 0.63 per cent in December to 0.73 per cent in June, while more home-loan customers entered hardship.

Chief financial officer Alan Docherty said there were “clearly pockets of customer stress”, although arrears remained only slightly above pre-pandemic levels despite rates sitting about three percentage points higher.

Almost 85 per cent of CBA mortgage customers remain ahead on repayments.

The slowdown is not confined to CBA. Westpac on Monday revealed mortgage applications had fallen 20 per cent since the Budget, while NAB said late last month its home-loan applications were down 15 per cent in the June quarter.

Borrowers got some relief on Tuesday when the Reserve Bank left rates on hold for a second-straight meeting, though economists described it as a “hawkish hold” after the central bank hinted at further increases.

“Australian mortgage holders have had an interest rate reprieve but are not out of the woods just yet,” Betashares chief economist David Bassanese said.

House prices are falling at the same time, with Labor’s changes to negative gearing and the capital gains tax discount adding another headwind for investors.

National home values fell 0.7 per cent in July, according to Cotality, the biggest monthly drop since December 2022. Capital city auction clearance rates have remained below 50 per cent since late May.

Falling prices leave highly leveraged borrowers with less room to move, but CBA has a sizeable cushion against modest price falls: across its mortgage book, customers owe about $41 for every $100 their homes are worth.

Mr Docherty said modest house-price falls mattered far less to the bank than a deterioration in the jobs market.

“It’s not particularly sensitive to the change in house prices,” he said. “It’s much more sensitive to things like the unemployment rate.”

Mr Comyn pushed back on the idea higher rates had been a simple windfall for banks.

Over five years, he said lenders were paying about $164.5b more in interest to depositors and wholesale funders while collecting about $138.7b more from borrowers.

CBA’s margin between what it earns on loans and pays for funding narrowed from 2.08 per cent to 2.05 per cent as competition for borrowers stayed fierce.

Mr Comyn said there was “a lot of pricing activity in the market”, including the return of mortgage cashback offers, as banks fought harder over a shrinking pool of new borrowers.

But the CBA boss said he would not sacrifice margins or lending discipline simply to chase mortgage growth.

With home lending slowing, business banking is increasingly picking up the slack.

The division now contributes more than 40 per cent of CBA’s cash earnings, after profit rose 11 per cent to $4.54b and lending jumped 13 per cent.

CBA provided about $50b of new business finance during the year, or roughly $135 million a day.

“The growth in business lending is particularly important because it supports investment, employment and productive capacity across the economy,” Mr Comyn said.

Across the group, provisions for potential loan losses rose to $6.5b as CBA padded its buffers against a weaker economy and global uncertainty.

CBA expects mortgage credit growth to slow to about 4 to 5 per cent this year, with last year’s surge in investor borrowing unlikely to be repeated.

Mr Comyn said applications appeared to have stabilised after the post-May fall and some buyers could return if rate cuts came back into view, but the bank still expected “a couple of percentage points lower credit growth in ’27”.