Australia Banks Revenue Headwinds

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Australia Banks Revenue Headwinds

Asia Pacific InsightMMortgage Growth: Air Pocket

Investors have been the key driver of the pickup in mortgage growth over the past two

years. However, the Federal Government's changes to tax concessions for investment in

established properties materially changes investor economics. With this in mind, the

lesson from history, such as the 1985–87 negative-gearing restrictions and APRA’s post-

2014 investor-lending controls, is that policy changes can have a material effect on

mortgage growth.

A mortgage slowdown was already developing before the policy changes, reflecting the

combination of higher interest rates, weaker borrowing capacity and cost-of-living

pressures. System mortgage growth slowed from an annualised rate of ~8% in March and

April to ~6% in May, but leading indicators have deteriorated further. We highlight the

following:

• House prices are declining and expectations have fallen to a 3-yr low.

• Investor demand for established dwellings has dried up, while demand for new

builds is patchy.

• The number of auctions has fallen and auction clearance rates are near multi-year

lows.

• Mortgage application volumes are lower and conversion rates could also fall.

• Existing investors are increasing leverage and switching to interest only loans.

• Developers are now responding to the weaker demand signal.

We forecast system housing loan growth to slow from ~5.5% in FY26 to ~3.0% in FY27E,

with investor loan growth around zero. What's more, sources of upside are hard to

identify.

Exhibit 7: Australian System Mortgage Annualised 1-Month Exhibit 8: Sydney Auction Clearance Rates and The Federal

Growth Rate in the mid 1980s (%) - When negative gearing was Budget - The average auction clearance is ~6pts lower than it