NAB flags rising mortgage stress as home loan demand falls

NAB's June quarter update shows home lending applications fell 15% while watch loans — early stress markers — climbed to 1.17% of gross loans.

NAB's application pipeline drops sharply across the board

National Australia Bank has delivered its third-quarter trading update for 2026, and the numbers confirm a housing market under significant pressure. Total Australian home lending applications at NAB fell 15% in the June quarter compared to the March quarter, and were 16% lower than the same period a year earlier, The Adviser reports.

Investor applications declined 17% over the quarter. Owner-occupier applications fell 14%. Both categories have been hit hard by the combination of higher rates and the federal government's May budget decision to remove negative gearing benefits on established dwellings purchased after 12 May 2026 — effective 1 July 2027.

NAB chief executive Andrew Irvine acknowledged the headwinds directly: "The combined impacts of the Middle East conflict, higher domestic interest rates and recent tax changes in the federal budget are creating challenges and uncertainties for our customers. The Australian home lending market softened in 3Q26 with our applications down 15 per cent compared with 2Q26."

The loan book itself held up in the near term — gross loans and acceptances reached $451.4 billion at the end of June, up 1% from $445.7 billion three months earlier and 4% higher than a year ago. But the pipeline of applications tells the forward story: weaker demand now will translate to slower growth in commitments over coming months.

NAB also continued to push business toward its own channels, with proprietary drawdowns accounting for 50.9% of total drawdowns in the June quarter, up from 47.7% in the first half of the 2026 financial year.

Watch loans rise as early stress signals mount

Beyond the application slowdown, NAB flagged a rise in loans being more closely monitored — a metric that matters for borrowers still in market and for those assessing how lenders are likely to behave as conditions soften.

Watch loans — loans flagged for closer repayment attention because of potential borrower vulnerability — rose to 1.17% of gross loans and acceptances at June, up from 1.11% at March. Housing loans more than 90 days past due increased to 1.01%. Loans more than 30 days past due edged up to 1.63%.

Irvine clarified the picture: "While the ratio of non-performing loans declined over 3Q26, watch loans were higher reflecting current and potential stress impacting performing customers." In other words, these are borrowers who are meeting their obligations now but who the bank has identified as potentially vulnerable if conditions deteriorate — a further rate rise, a job loss, or an unexpected expense.

NAB is not alone in reporting these trends. Westpac's average monthly mortgage applications fell 11% over the June quarter to 29,000, with the post-budget monthly run rate 20% below second-quarter levels. Investor applications at Westpac were down 26% following the budget. CBA reported mortgage applications 17% lower in June than a year earlier. ANZ said applications fell 12% between the May budget and the end of July. Alongside these application figures, the ABS Lending Indicators for the June quarter recorded a 5% drop in total new housing loan settlements — the second consecutive quarterly fall and the first back-to-back decline in over three years.

What borrowers should do before conditions tighten further

If you are already on a variable rate and your budget feels stretched, acting before conditions worsen gives you more choices. Refinancing into a more competitive rate, moving to a lower-cost lender, or restructuring your loan term to reduce monthly repayments are all options more accessible while you are still performing on your current loan.

Our refinancing hub walks through the process, and the repayment calculator lets you model what different rates or terms would mean for your monthly cash flow. If you are a first-home buyer trying to navigate current lending conditions, the first-home buyer hub covers what the present environment means for entry-level borrowers.

Bendigo Bank's chief economist David Robertson has retained the bank's forecast of a further RBA rate rise in November, after the central bank held at 4.35% in August with a Monetary Policy Statement Robertson described as "sufficiently hawkish." The unemployment rate has risen to 4.4%, and the RBA expects it to approach 5% by late next year — conditions that could put further upward pressure on watch-loan ratios at the major banks.

A 25 basis point rate rise on a $731,000 loan — the current national average new owner-occupier loan size — adds roughly $110 a month to repayments. On the larger NSW average of $842,000, the same increase adds closer to $127 a month. If you haven't stress-tested your budget against a further move, now is the time.