Australian Banks Face Mortgage Slowdown and Valuation Pressure

Westpac led the downturn with a 20% drop in home-loan applications during the June quarter, while Commonwealth Bank and National Australia Bank reported 15% declines. ANZ followed with a 12% slump, signaling a broader retreat in the A$2.5 trillion mortgage market that these four banks dominate. With government tax concessions for property investors scrapped and auction clearance rates hitting six-year lows, the sector’s primary revenue engine is sputtering.

Despite recent share price declines of up to 12%, Australian banks remain among the most expensive globally, trading at forward price-to-earnings multiples between 16.2 and 24. For comparison, international giants like JPMorgan and Bank of America trade between 14 and 15 times earnings. Citi analysts now expect revenue growth for the Australian sector to decelerate to 2.9% by 2027. Investors are increasingly wary, with many shifting focus toward mid-cap and small-cap stocks that offer better growth prospects at more reasonable valuations. As the pool of potential borrowers shrinks, the intense competition for a smaller share of the market is expected to further compress margins, leaving little room for the optimistic earnings outlooks of previous years.