Westpac Data Shows Investor Tax Bite on Mortgages

Mortgage applications at Westpac have fallen 20% since the federal budget, with investor demand hit hardest — here's what it means for you.

Westpac's third-quarter update has handed the mortgage market some of its starkest post-budget numbers yet, confirming what brokers have been seeing on the ground: investor demand is falling sharply, borrowing power has shrunk, and the slowdown is rippling across the banking sector.

What Westpac's Numbers Actually Show

MPA Australia reports that Westpac's third-quarter update, released 10 August 2026, reveals average monthly mortgage applications fell 11% quarter on quarter to 29,000 in the third quarter — then fell further after the federal budget to a run rate of 26,000 applications per month, a drop of 20% below the second-quarter level.

The investor segment led the decline. Investor applications have dropped 26% since the budget, compared with an 18% fall in owner-occupier applications. Westpac's chief financial officer Nathan Goonan described the result as a market going through a "period of real dislocation" from both the budget changes and the interest rate environment.

The quarterly cash earnings figure came in at A$1.8 billion, down from A$1.9 billion a year earlier, even as Westpac's lending book still grew 2%. Gross loans stood at A$908 billion at June, up from A$890 billion at March, and the bank settled A$33.3 billion in mortgages in the June quarter, with the average loan size at $553,000.

The share market read the update harshly: Westpac shares fell as much as 5.9% on the day — the bank's worst session since April 2025 — and the selling spread across the sector, with CBA, NAB, and ANZ shares each falling more than 2%.

Despite the application numbers, Westpac noted that existing mortgage customers remain broadly resilient. At June, 27% of mortgagors were at least two years ahead on repayments and a further 19% were between six months and two years ahead. Thirty-plus-day delinquencies sat at 1.14% and 90-plus-day at 0.58%.

Looking ahead, Westpac is forecasting total housing credit growth will slow from 6.8% in FY26 to 4.7% in FY27, before recovering to 5.2% in FY28. The sharper story is in the investor segment: investor housing credit growth is expected to nearly halve from 9.1% to 4.5% between FY26 and FY27.

How the Negative Gearing Changes Are Reshaping Borrowing Power

The policy driving much of this is the federal budget's changes to negative gearing treatment for residential investment properties. Since the budget, the major lenders have updated their serviceability assessments consistently: contracts signed on or before 12 May 2026 preserve negative gearing in the borrowing-power calculation; anything signed after that date only qualifies if the property is a new build. NAB and Westpac confirmed the change early. CBA followed, and even went further in late May by asking brokers to edit and resubmit affected files for reassessment through ApplyOnline. ANZ and Macquarie also confirmed the change early in the process.

NAB's own trading update showed the same pattern as Westpac, with mortgage applications there down roughly 15% over the June quarter and application values down 9%, attributed partly to ongoing uncertainty around the tax changes.

The borrowing power impact is significant. An investor on a 37% marginal tax rate is now looking at roughly a 10–15% cut to investment borrowing capacity, with the cut rising above 20% for higher earners or those with multiple properties. To put real numbers on it: a client earning $100,000 with no existing debt could see their investment borrowing capacity fall from approximately $750,000 to $600,000 — purely from losing negative gearing in the serviceability calculation. That is a $150,000 reduction before interest rates or other factors are even considered.

On prices, CBA's economists have cut their December 2026 dwelling price growth forecast to 3%, down from 5% before the budget, with the impact expected to bite hardest in apartments and lower-priced segments where investor activity is concentrated. ANZ economists have flagged that total housing credit growth that had been tracking at 8–9% annually is now more likely to settle at 5–6%.

On the channel side, Westpac's proprietary lending share fell to 36.1% of new mortgage flows in the third quarter, down from 41.7% of the June 2026 balance and 43.4% in June 2025 — a trend suggesting broker-sourced business is holding up comparatively better through the dislocation. Variable-rate lending remained dominant at 93% of new flows; interest-only lending made up 21.9% of new flows, well above its 13% share of the existing book.

What to Do If You Have an Investment Property

If your contracts were signed before 12 May 2026, negative gearing continues to count in serviceability calculations — worth double-checking that the paperwork clearly supports the original signing date. For purchases signed after 12 May, if the property is not a new build, the loan needs to be modelled without negative gearing in the equation. That means revisiting borrowing capacity before committing, not after. Use our borrowing power calculator to sense-check the numbers before approaching a lender, and factor in that lenders are still refining their calculators as legislation moves through Parliament — further adjustments are possible.

The first-home buyer segment and the new-build market are shaping up as relative bright spots. First-home buyers' share of Westpac's new quarterly mortgage flows edged up to 13.3%, from 12.4% of the June balance. Westpac CEO Anthony Miller pointed to housing undersupply and population growth as factors that should partly cushion the broader market over time.

For investors already in the market and looking to refinance, conditions remain competitive even as investor volumes compress. For new-purchase strategies, the investor home loan hub outlines what products are currently available and how lenders are pricing in the current environment.

MPA Australia