Westpac blames Reserve Bank hikes more than Budget for plunge in mortgage applications

Westpac has blamed Reserve Bank interest rate hikes instead of just Budget tax changes on investment properties for plunging mortgage applications, with first-home buyer activity remaining unchanged despite a housing market downturn.

Nathan Goonan, the Westpac Bank’s chief financial officer, has revealed an 18 per cent plunge in owner-occupier mortgage applications and a corresponding 26 per cent slump in investor loan applications since the May Budget, delivered a week after the third rate hike this year.

“I guess we’d probably draw some conclusion from that that the rate impact is probably equal or potentially a bigger impact than anything that happened in the Budget,” he told analysts on Monday in a conference call.

“You’ve got a mortgage market that has got a period of real dislocation whether it be through the Budget changes and then through rates.”

Overall mortgage applications had fallen by 20 per cent since the May 12 Budget, with loan applications 11 per cent below the five-year average, with a mortgage slowdown also expected in the September quarter.

“We expect mortgage system growth to moderate in the fourth quarter in response to a higher rate environment and the recent Federal Government policy changes,” Mr Goonan said.

Average, monthly mortgage applications have fallen to 26,000 since the Budget, down from the June quarter monthly average of 29,000 covering the period from the start of April until the end of June.

But a rebound in recent weeks means Westpac is expecting a recovery from November in mortgage applications.

“We’d be cautious about drawing too many conclusions on one month’s of data but you’d be right to say that June was lower than the prior two months,” Mr Goonan said.

“We’re looking forward to being on our feet in November.”

Despite the bigger fall in investor loan application, first-home buyers still made up 12.4 per cent of Westpac’s loan book in the June quarter, unchanged from the March quarter before Labor’s Budget tax changes were announced with recent interest rate rises diminishing the borrower capacity of prospective borrowers.

“We haven’t necessarily seen first homebuyers pick up the slack yet,” he said.

Investor loans made up 32.6 per cent of Westpac’s mortgage portfolio in Australia, up from 32.4 per cent despite the Budget tax changes, as the owner-occupier component fell to 66.7 per cent from 66.9 per cent.

Separate data from credit check firm Equifax Australia showed a 18.8 per cent annual fall in mortgage demand in June and a 16.4 per cent drop in July, marking the fourth straight month of decline on a year-on-year basis.

First homebuyers are also deserting the market with their level of mortgage demand 20.9 per cent weaker in June, on an annual basis, and down 19.1 per cent in July, despite the Federal Government’s 5 per cent deposit scheme taking away the income cap in October last year.

“As we’ve seen over the past few months, initial tailwinds from government deposit schemes provided early-year momentum for first-home buyers, but higher interest rates have absorbed those benefits over the last four months,” Equifax Australia’s chief solution officer Kevin James said.

“Without a clear signal on cash rate relief or broader economic easing, this cautious holding pattern is likely to remain the reality for the remainder of the year.”

The futures market is expecting the Reserve Bank of Australia to leave rates on hold at 4.35 per cent on Tuesday, after hikes in February, March and May undid the effects of last year’s relief.

Westpac last month became the last of the big four banks to cancel a forecast of a rate hike after official inflation data for June showed the consumer price index moderating to 3.8 per cent, down from an annual pace of 4 per cent in May to be at the lowest level since February before the Iran war.

“That type of uncertainty does particularly put the mortgage market into a bit of a suspended animation,” Mr Goonan said.

Westpac chief economist Luci Ellis had last year called for the 50 per cent capital gains tax discount on investment properties to be replaced with a system of indexation that existed from 1985 to 1999.

But the May Budget went further and introduced a minimum 30 per cent capital gains tax for increases occurring after July 1 next year.

Negative gearing tax breaks for investor landlords were also restricted to brand new homes exchanged after Budget night, with the change also coming into effect in July 2027.

Sydney and Melbourne house prices have been falling since February when the RBA began hiking rates again with Adelaide and Brisbane joining the downturn in June, Cotality data showed.