Major Banks Running Scared As Property Market Now On Life Support
By: Niro Thambipillay
August 19, 2026
Australia’s four major banks have all reported a sharp fall in new mortgage applications, even though home-loan arrears remain below 1%. In this article, I explain why this is a demand and transaction slowdown rather than a borrower repayment crisis, why prices have not collapsed, how lenders are responding, and why selected property markets could regain momentum before the RBA cuts rates.
TL;DR
Mortgage applications have fallen at all four major banks, but arrears remain under 1%, so this is not a widespread repayment crisis. Buyers and sellers have both stepped back, keeping transaction volumes low without creating the forced-sale flood needed for a broad price crash. Banks are already trying to restart demand through longer loan terms, serviceability changes, rate discounts, and new incentives. If confidence improves before official rate cuts arrive, carefully selected markets with limited supply and strong local demand could move first.
Key Takeaways
- Mortgage applications fell across every major bank: Westpac reported a 20% decline, NAB and CBA 15%, and ANZ 12%.
- This is not a repayment crisis: Major-bank home-loan arrears remain below 1%.
- Low turnover is supporting prices: Fewer buyers are competing, but many owners are waiting or withdrawing rather than selling under pressure.
- Banks need new borrowers: Longer loan terms, adjusted borrowing calculations, discounted variable rates, and incentives are being used to stimulate demand.
- Recovery may begin before an RBA cut: Investor applications have stabilised and auction activity is already showing early signs of improvement in some markets.
What Did All Four Major Banks Reveal?
Within four days, Australia’s four major banks disclosed substantial declines in new mortgage applications. Westpac reported applications down 20% since the federal budget, NAB and Commonwealth Bank reported falls of 15%, and ANZ reported a 12% decline.
That matters because mortgage growth is central to the banks’ business models. Commonwealth Bank delivered a record $10.98 billion profit and holds a home-loan book of about $680 billion across nearly two million mortgages, yet even it is seeing fewer new borrowers enter the pipeline.
1. Why This Is Not a Borrower Repayment Crisis
The phrase mortgage crisis can suggest that owners are missing repayments and banks are facing rising defaults. That is not what the figures show. Home-loan arrears at the major banks remain below 1%, which means the overwhelming majority of borrowers are continuing to meet their obligations.
The banks’ immediate problem is different: they are struggling to write as many new loans. Existing borrowers are generally holding up, but prospective buyers and investors have become more cautious. The property market is on life support in the sense that transaction activity is weak, not because distressed owners are flooding the market.
2. Why Prices Have Not Collapsed
A broad property crash normally requires many owners to sell at the same time, often because they cannot hold their properties. That forced supply then competes for a smaller pool of buyers and pushes prices down. Australia’s current slowdown does not have that ingredient at scale.
Buyers have stepped back, but many sellers are also waiting, withdrawing, or refusing to accept lower offers. Investor tax changes discussed in the video may reinforce that behaviour because existing investors retain their negative-gearing treatment until they sell. This helps explain the conditions a genuine Australian property crash would need, and why weak mortgage demand alone has not produced one.
3. Why Buyer Demand and Seller Supply Froze Together
Three RBA rate rises in February, March, and May had already reduced borrowing capacity, but the banks did not report an immediate collapse in applications after each move. In the video, Niro links the sharper decline to uncertainty following the federal budget and proposed tax changes, particularly for investors.
If existing investors keep their current tax treatment only while they hold, some will delay selling. At the same time, prospective investors may pause while they assess the new rules. The result is a thinner market on both sides: fewer buyers, fewer willing sellers, and fewer completed transactions.
4. How Banks Are Trying to Restart Mortgage Demand
Banks make money by lending, so a sustained fall in mortgage applications gives them a strong incentive to bring borrowers back. AMP has introduced a 40-year home loan, some lenders are changing how they calculate borrowing capacity, and banks have begun cutting selected variable rates even without an RBA move.
Expect further competition through sharper pricing, incentives, and products designed to make repayments or serviceability look more manageable. These measures do not remove the need for a proper safety buffer, but they can gradually increase the number of buyers able or willing to transact.
5. Why Buyers May Return Before the RBA Cuts
One possible recovery path is an official rate cut around mid-2027. The other is that lender competition improves affordability and confidence before the cash rate changes. Commonwealth Bank CEO Matt Comyn said the decline in investor applications had stabilised, while national auction clearance rates reached a 12-week high.
Niro also points to multiple unconditional offers in Adelaide and queues at some open homes in Melbourne and regional markets. Those are not proof of a national boom, but they suggest buyer confidence can turn before borrowing conditions fully improve.
What Could This Mean for Australian Property?
The market may have been on life support, but the banks are unlikely to leave it there. Mortgage lending is too important to their earnings, and every major lender now has a reason to compete harder for new business. Even a modest recovery in confidence can matter when available housing supply remains constrained.
That does not mean every city or suburb will perform equally. Local supply, affordability, employment, rental demand, and the quality of the individual property still determine results. This is why choosing the right suburbs to invest in matters more than reacting to one national headline.
What Buyers and Owners Should Do Now
The current environment calls for preparation and selectivity:
- Check real borrowing capacity: Compare lenders and understand how serviceability rules, loan terms, and rate discounts affect the total cost.
- Keep a financial buffer: Do not rely on a future RBA cut to make the property affordable.
- Research locally: Assess suburb-level listings, construction, jobs, rental demand, and affordability rather than treating Australia as one market.
- Use slower conditions well: Lower competition can provide more time for due diligence and negotiation.
- Owners should avoid panic: Low application volumes do not automatically mean a wave of forced sales or a national price collapse.
Niro’s view is that the banks will keep trying to restart demand and that confidence may improve before official rate cuts arrive. The opportunity is not to buy everywhere, but to identify the limited markets where demand, supply, and affordability still support growth.
Summary
- Westpac mortgage applications fell 20%, NAB and CBA 15%, and ANZ 12%
- Major-bank home-loan arrears remain below 1%, so the slowdown is not a widespread repayment crisis
- Prices have held because fewer willing sellers are matching the decline in active buyers
- Investor uncertainty and grandfathered tax treatment may keep both buyers and sellers on the sidelines
- Banks are responding with longer loans, serviceability changes, variable-rate discounts, and incentives
- Investor applications have stabilised and auction activity is showing early improvement in selected markets
- A recovery in confidence could begin before an RBA rate cut, but performance will remain market-specific
Frequently Asked Questions
Yes. Lender competition and improving confidence can bring some buyers back before the cash rate changes. Investor applications have stabilised, auction clearance rates have improved, and selected markets are already showing stronger open-home and offer activity.
Banks are using longer loan terms, revised borrowing-capacity calculations, selected variable-rate discounts, incentives, and new products to attract borrowers. These measures can improve access to credit, although buyers still need to assess the total cost and keep a safety buffer.
Mortgage applications have fallen because higher borrowing costs and uncertainty have made buyers and investors more cautious. The banks reported declines of 12% to 20%, even though most existing borrowers are still meeting their repayments.
Prices have not broadly crashed because active seller supply has also remained constrained. Many owners can still afford to hold, so they are waiting, withdrawing, or rejecting lower offers instead of becoming forced sellers.
The available major-bank figures do not show a widespread repayment crisis. Home-loan arrears remain below 1%, so the immediate problem for banks is fewer new mortgage applications rather than a large wave of borrowers unable to repay.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
