New mortgage applications slumped 15% at CBA, but the numbers are worse for one group

The Commonwealth Bank says loan applications from property investors have plunged 28 per cent since Labor’s clampdown on housing investor tax concessions, as the housing slump puts the brakes on the $2.5 trillion mortgage market.

The sharp drop was revealed as CBA also disclosed chief executive Matt Comyn’s pay rose to $9.1 million in its latest financial year, up from $7 million a year earlier, because of bonuses from previous years that had been deferred and vested during the year to June.

CBA on Wednesday was the latest bank to flag softer new lending due to the slump in the property market, as it also notched up $11 billion in cash profits for the year to June.

The banking giant said mortgage applications had dropped 15 per cent since the May budget, which included moves to rein in negative gearing and capital gains tax concessions. The sharpest fall was in investor loan applications, which tumbled 28 per cent.

Comyn said housing credit growth would be slower next year, though he said there were other reasons for the slowdown aside from tax changes, including rising interest rates and economic uncertainty. He said housing was an area where Australia needed “faster and more coherent execution,” alongside energy, infrastructure, technology and skills.

“There is understandably a lot of focus on short-term movements in house prices, given they represent a large share of household wealth. But Australia’s deeper housing challenge is our inability to build enough homes quickly and affordably,” Comyn said.

However, some experts say the slowdown in the housing market and mortgage lending, a trend also reported by rivals Westpac and National Australia Bank, may contribute to weaker construction of new housing.

AMP chief economist Shane Oliver said it was likely that softer new lending would feed into weaker construction of new homes, even though the government’s crackdown on investors does not apply to investors in newly-built homes. Despite the carve-out for newly-built homes, investors would still be more nervous about going into this part of the market, Oliver said.

“Investors generally would think it’s more risky to go into the new housing market than it used to be,” Oliver said. “The trouble is that a new-build eventually becomes an old-build when they sell it, and there may be fewer investors [who are] buying it down the track.”

“Generally speaking, when housing finance turns down, you tend to see a downturn in finance for new construction at the same time.”

The Housing Industry Association, a vocal opponent of the government’s changes, said weakness in new lending was a symptom of a weaker property market and falling prices. HIA chief economist Tim Reardon predicted a shallow market downturn, which would delay the construction of much-needed new homes.

“Why would you build new when established [housing] is getting cheaper?” he said.

But independent economist Saul Eslake said he did not think weaker investor lending would lead to softer housing construction because he said more than 80 per cent of property investor loans were used to buy established houses, as opposed to new builds. Eslake said less lending to investors buying established homes would be a good thing because housing had become so unaffordable for many.

The government says its clampdown on property investor tax breaks is aimed at helping first home buyers afford a home, and Comyn said he expected a pick-up in demand once there was “anticipation of rate cuts.”

When asked if the government’s changes had helped first home buyers, Comyn said house prices had peaked in March, and “fallen in the four months since then, I think about 2.5 per cent.”

“Now, obviously, there’s a range of different, forecasts, but you would imagine that, when rates look like they might change, we’ll see an increase,” Comyn said.

CBA’s cash net profit after tax rose 7 per cent in the year to June, as its operating income grew by 6 per cent, helped by growth in CBA’s key markets of home loans, business loans, consumer lending and household and business deposits.

CBA’s annual report said realised pay for Comyn last year was $9.1 million, and 39 per cent of this reflected the vesting of long-term bonuses from 2021 and 2022.

The Finance Sector Union highlighted Comyn’s pay as part of its push for 5 per cent pay rises across the bank’s staff as part of ongoing wage negotiations. Finance Sector Union National Secretary Julia Angrisano said the $11 billion profit was the “latest insult” to staff, saying the bank’s most recent wage offer to staff would result in many going backwards after inflation.

As well as chalking up higher profits, CBA raised its final dividend to $2.70, up from $2.60 last year.

CBA’s numbers are seen as a bellwether for the Australian economy, and the banking giant’s results showed its expenses for impaired loans had increased by 47 per cent in the June half compared with the March half, to $788 million.

Return on equity, a key measure of profitability, rose by 0.5 percentage points to 14 per cent over the year. CBA shares were 0.7 per cent lower in afternoon trade.

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