Westpac home mortgages slump 20 per cent as investors retreat

Westpac has blamed higher interest rates and Federal Budget changes for cooling the housing market as its mortgage applications fall 20 per cent and investor credit growth is tipped to roughly halve next year.

Home loan applications are now running at about 26,000 a month, 20 per cent below first-quarter levels and 11 per cent lower than the June-quarter average of 29,000.

Australia’s second-largest lender expects the slowdown to hit investors hardest, forecasting investor housing credit growth will fall from 9.1 per cent this financial year to 4.5 per cent in the next. Overall housing credit growth is tipped to ease from 6.8 per cent to 4.7 per cent.

Chief financial officer Nathan Goonan said the retreat had been faster among investors with applications down 26 per cent compared with an 18 per cent fall from owner-occupiers.

He said “rate volatility is the biggest determining factor of uncertainty in the mortgage market”, with expectations swinging from further rate rises to the possibility of cuts and leaving the market in “a bit of a suspended animation”.

“The rate impact is probably equal or potentially a bigger impact than anything that happened in the Budget,” he told analysts one day before the Reserve Bank’s next cash rate meeting.

Chief executive Anthony Miller said households were feeling the strain even as businesses kept spending.

“While many households are feeling the impact of cost-of-living pressures, businesses are investing and our customers have continued to show resilience,” he said.

Business borrowers backed that up, with Australian business lending jumping 4 per cent over the quarter and institutional lending rising 3 per cent, against a 2 per cent increase in housing loans.

The mortgage slowdown has yet to seriously dent Westpac’s earnings. Third-quarter underlying profit came in at $1.8 billion, up 2 per cent against its first-half quarterly average but below the $1.9b it made in the same period last year.

Net interest margins held at 1.89 per cent through the quarter but were 10 basis points lower than a year earlier. Mr Goonan said mortgage margin pressure had become more pronounced as competition intensified.

He said Westpac had started competing harder for mortgages after its loan book grew more slowly than the broader market but expected the fight for borrowers to squeeze margins further by the full-year result.

Credit quality has so far held up, with mortgage delinquencies edging just one basis point higher to 0.58 per cent. Hardship balances rose, however, while stressed business exposures also ticked up.

Bad-debt charges have doubled from a year ago, albeit from a low base, as Westpac builds a bigger cushion against a weaker economy.

Westpac has set aside $5.3 billion to cover potential bad debts, about $2b more than it expects to need under its central economic forecasts, as signs of stress crept higher among property, utilities and manufacturing businesses.

The bank’s capital buffer remained comfortably above its target. Its sale of the RAMS mortgage portfolio earlier in August removed $15.4b of home loans from its books further strengthening that buffer.