Westpac says home loan applications dropped by 20 per cent since budget reforms

Westpac says home loan applications have fallen by up to 20 per cent as the impacts from May’s federal budget property tax reforms begin to take effect in the property market.

In its quarterly report, the bank said it expects investor demand for home loans will halve in the next two years, adding that home loan applications have fallen by 11 per cent since the start of the second quarter, and 20 per cent alone in the last three months.

It has been around three months since the federal government delivered a budget filled with controversial reforms to property tax, including scrapping negative gearing and removing exemptions to the capital gains tax, all designed to make it easier for younger people to get into the property market.

The impact has been keenly felt already, with another big bank, NAB, also finding home loan applications had fallen.

NAB found home loan applications had fallen by 15 per cent in the last quarter, with their value falling by about nine per cent, the bank said in its Business and Banking Briefing released at the end of last month.

Speaking to The Australian Financial Review, Westpac’s chief financial officer, Bruce Goonan, said the budget reforms, as well as external factors, were buffeting the property market, which is now in a downturn.

“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,” he said.

“We are seeing investor [applications] down more than owner-occupied. We haven’t necessarily seen first home buyers pick up the slack yet. But we would be cautious about drawing too many conclusions at this point in the cycle.”

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Goonan added there was still uncertainty about the fate of interest rates for the rest of this year, with experts predicting rates to remain on hold when the Reserve Bank of Australia meets on Tuesday.

He even suggested there could be rate cut, which would have an impact on the mortgage market as investors continue to be wary.

“We were expecting two rate rises, and now we’re potentially suggesting the next rate move is down,” he said.

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

The data from Westpac suggests the biggest impact will be felt with investor home loans, with the value of owner-occupier home loans set to be hit less hard.

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The bank believes their value will fall from 5.7 per cent to 4.8 per cent in the next year, but will stabilise to 5.6 per cent by the 2028 financial year.

In total, it expects the value of home loans to fall to 4.7 per cent in the next year, before rising slightly to 5.2 per cent; it currently sits at about 6.2 per cent.

Westpac’s CEO insisted the bank was focused on supporting customers through cost of living challenges.

“We have a strong balance sheet and are focused on supporting our customers through uncertainty while delivering sustainable returns”, Anthony Miller said in a statement on Monday.

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