Westpac (ASX: WBC) shares dropped more than 5% after reporting a 20% plunge in mortgage applications (investors -26%) and forecasting investor housing credit growth to slow to 4.5% in 2027. Quarterly profit held at A$1.8bn amid tax reform impact.
Westpac Banking Corp (ASX: WBC) shares slumped more than 5% on Monday after the lender reported a sharp 20% drop in mortgage applications and warned that Australia’s recent property tax reforms could significantly slow investor housing demand. The bank’s quarterly update showed resilient earnings but highlighted weaker new lending momentum following the May budget changes to negative gearing and capital gains tax. Westpac shares underperformed the broader market as investors digested the outlook for housing credit growth.
Westpac Shares Drop 5.14% as Mortgage Applications Fall 20% and Investor Credit Growth Set to Halve
Westpac shares fell 5.14% to A$35.98 (with intraday declines reported as high as 5.9%), significantly underperforming the S&P/ASX 200 (down about 0.5%) and the financials sub-index (down around 1.9–2%).
The bank said average monthly mortgage applications fell 20% to about 26,000 between mid-May and end-July, from around 29,000 previously. Investor applications dropped 26%, while owner-occupier applications declined 18%.
Westpac forecast investor housing credit growth to slow to 4.5% in 2027 from 9.1% in 2026, and further to 4.4% in 2028. Total housing credit growth is expected to ease to 4.7% in 2027 from 6.8% in 2026.
On the earnings front, Westpac reported quarterly cash/statutory net profit of about A$1.8 billion (up 3% on the first-half 2026 quarterly average, or modestly lower than A$1.9 billion a year earlier). Loans and deposits each grew 2%, with business lending up 4% and housing up 2%. The common equity tier-1 (CET1) capital ratio stood at 12.1%, above the bank’s 11.25% target. Net interest margin was steady at around 1.89%.
Management noted continued intense competition in mortgages and deposits as a pressure on margins, and said the bank plans to grow its mortgage book more cautiously than system in the near term.
Investor Mortgage Slump and Credit Growth Outlook Drive Westpac Sell-Off
The sharp fall in new mortgage applications, particularly from investors, raised concerns about slower loan growth and potential pressure on future net interest income — a core profit driver for Australia’s major banks, which control more than 70% of the national mortgage market.
Although current-quarter earnings held up reasonably well, the forward-looking guidance on housing credit growth (especially the halving of investor demand) overshadowed the resilient numbers. Investors focused on the combined impact of higher interest rates and the May budget tax changes, which reduced the attractiveness of property investment.
The update triggered a broader sell-off in bank stocks as the market reassessed the sector’s growth outlook into 2027.
May 2026 Budget Tax Reforms: Negative Gearing Limited to New Builds and 50% CGT Discount Scrapped from July 2027
In the May 2026 Federal Budget, the Australian government announced reforms to property tax settings, effective largely from 1 July 2027. These include limiting negative gearing deductions for residential property to new builds and replacing the 50% capital gains tax discount with cost-base indexation plus a 30% minimum tax on real capital gains. Existing properties held before the announcement are largely grandfathered.
The changes aim to improve housing affordability and boost first-home buyer opportunities by reducing investor competition for established homes. However, they have already cooled investor demand, with auction clearance rates falling and national house prices softening in recent months.
Westpac’s update follows similar signals from peers (such as NAB reporting a 15% drop in applications earlier). Higher Reserve Bank of Australia interest rates have also contributed to softer demand, with management noting rate impacts may be equal to or larger than the tax changes. Structural factors such as housing undersupply and population growth are expected to provide some offset.
Key Focus: CBA Results, Mortgage Application Trends and 2027 Credit Growth Outlook
Investors will closely watch upcoming results from Commonwealth Bank and other major lenders for confirmation of system-wide trends in mortgage applications and housing credit growth. Further commentary from Westpac on proprietary channel performance, margin trends and any recovery in applications later in the year will be important.
Broader housing market data (prices, clearance rates and credit growth statistics) and any additional policy commentary will influence sentiment. The pace at which the tax changes affect investor behaviour into 2027 remains a key uncertainty for bank earnings outlooks.
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