Australia’s Big Four Banks Face Mortgage Slowdown as Valuations Draw Scrutiny

Australia’s largest banks are facing growing investor scrutiny as slowing mortgage demand, higher interest rates and tougher competition threaten earnings growth while valuations remain elevated.

ANZ, Commonwealth Bank, National Australia Bank and Westpac all reported double-digit declines in home-loan applications in their August results. The weakness follows changes to property tax concessions and softer housing conditions, raising concerns about the outlook for Australia’s highly profitable banking sector.

The Big Four collectively control more than 70% of Australia’s A$2.5 trillion ($1.77 trillion) mortgage market. They also represent roughly 24% of the S&P/ASX 200, meaning weaker bank performance could weigh heavily on the broader Australian stock market.

Despite recent share-price pressure, Australian bank valuations remain high compared with major global rivals. The four banks trade at forward price-to-earnings multiples ranging from about 16.2 to 24 times, while JPMorgan, Citigroup, Bank of America and HSBC trade around 14 to 15 times.

Mortgage weakness is emerging as the biggest concern. Australian housing demand has cooled after the government removed generous tax concessions for property investors. National home prices have fallen around 2% over four months, while auction clearance rates have dropped to six-year lows, according to Cotality.

Westpac recorded a 20% decline in home-loan applications during its third quarter. Commonwealth Bank and NAB each reported 15% falls, while ANZ posted a 12% decrease.

Morgan Stanley analysts warned that slower mortgage growth, increasing competition and weaker credit quality could create downside risks for 2027 earnings and justify lower bank valuations. Citi expects sector revenue growth to slow substantially to 2.9% in fiscal 2027 from 4.4%.

Pressure in Australia’s property market was further highlighted by residential developer Bathla Group entering external administration to restructure A$3.2 billion in debt.

Banks with larger business-lending operations could be better positioned, but softer house prices may also weaken consumer spending and eventually affect demand for business credit.

With fewer mortgage borrowers available, competition between Australian banks is expected to intensify, potentially squeezing lending margins and adding further pressure to already expensive valuations.