Mortgage demand in double-digit freefall as NAB troubled loans rise $150m

All four of Australia’s big banks have now recorded double-digit falls in home loan applications, with NAB mortgage demand slumping 15 per cent in three months as the housing slowdown spreads.

New applications from owner-occupiers fell 14 per cent over the June quarter, while investor demand dropped 17 per cent, even as Australia’s third-largest bank by assets lifted its quarterly profit.

Trouble is also mounting among existing borrowers, with non-performing mortgages swelling by $150 million over the quarter to $5.36 billion.

“The combined impacts of the Middle East conflict, higher domestic interest rates and recent tax changes in the Federal Budget are creating challenges and uncertainties for our customers,” chief executive Andrew Irvine said.

NAB joins Westpac, Commonwealth Bank and ANZ in reporting a sharp retreat in mortgage demand. Westpac applications are down 20 per cent, CBA volumes 15 per cent since May and ANZ applications 12 per cent since the Budget, although the measures and periods differ.

All four have pointed to higher rates and Labor’s tax changes, but put different weight on each. CBA boss Matt Comyn also blamed worsening affordability, global uncertainty and the Middle East oil shock.

Westpac finance chief Nathan Goonan said higher rates had probably done as much or more damage than the Budget, while ANZ put the tax changes more squarely behind its fall.

NAB expects the investor pullback to deepen, forecasting investor home lending will shrink 1.4 per cent next financial year even as it tips interest rates to fall.

Owner-occupier lending growth is also expected to soften before recovering to 4.5 per cent, while NAB forecasts the cash rate will fall to 3.6 per cent by the end of 2027.

The retreat is forecast despite rents still rising across the country as house prices fall, preserving some of the financial appeal for landlords.

NAB’s existing housing book has yet to go backwards, rising $5.7b, or one per cent, over the quarter to $451.4b. But the plunge in applications points to slower lending growth ahead.

Business is providing the counterweight.

NAB’s latest results showed business lending rose 2 per cent over the quarter, while a separate investor briefing in July revealed lending through its business and private banking arm had jumped 4 per cent to about $180b and was 10 per cent higher than a year earlier.

“Business credit growth has remained robust at this stage, but the Australian home lending market softened,” Mr Irvine said.

The July briefing also showed early signs of strain in the business book.

“Watch” loans rose 8 per cent over the June quarter, covering borrowers still meeting repayments but showing signs of greater or expected stress.

For investors, the profit lift was less impressive underneath. NAB posted unaudited cash earnings of $1.83 billion, up 2 per cent from its first-half quarterly average after stripping out a big software accounting charge.

Much of the gain came from a smaller bad-debt bill, which fell from an average $353m a quarter in the first half to $299m. More mortgages falling into trouble does not translate dollar-for-dollar into losses, with NAB already carrying provisions against bad loans and the properties securing them limiting potential losses.

Underlying profit was broadly flat, while revenue rose 2 per cent and underlying expenses climbed twice as fast at 4 per cent.

Its lending margin slipped slightly to 1.79 per cent, although it improved after stripping out its markets and treasury business.

Investors largely shrugged at the result, with NAB shares down about 0.1 per cent to $41.37 in early trade.