CBA Warns of 15% Mortgage Slump, Sees Stabilisation as Profit Beats Forecast

CBA’s $10.98bn Profit Overshadows a 15% Mortgage Slump

Commonwealth Bank has reported a full-year profit of $10.98 billion, up 7 per cent and ahead of market forecasts of $10.85 billion. The result was driven by growth in home, business and consumer lending, alongside robust deposit volumes. Shareholders will receive a final dividend of $2.70 per share, a 4 per cent increase, reflecting a payout ratio of 77 per cent.

However, the bank warned that mortgage demand has fallen sharply. Loan applications have dropped 15 per cent since May, and 17 per cent compared with the same period a year ago. The slowdown coincides with controversial federal property tax changes, including the removal of the 50 per cent capital gains tax discount and the grandfathering of negative gearing, which have chilled investor sentiment. CBA is not alone: NAB reported a 15 per cent decline in mortgage applications, while Westpac saw demand fall 20 per cent.

CEO Matt Comyn told investors that application volumes have stabilised, with the weakest week in early June, and expects credit growth to slow over the next 12–24 months. He still anticipates mortgages will grow 4–5 per cent over the coming year. Comyn noted that higher inflation and interest rates are unevenly squeezing households, particularly those aged 25–55, and that consumption is below levels of five years ago.

Australia’s housing market has entered a national downturn, with property values dropping 0.7 per cent in July 2026, the steepest monthly decline since December 2022. The Reserve Bank held the cash rate at 4.35 per cent in August but flagged further hikes. CBA’s base case assumes rates stay on hold for the rest of 2026 before cuts begin in 2027, which Comyn expects will rekindle buyer activity. Loan impairments rose 9 per cent to $788 million, though housing arrears remain low at 0.73 per cent.

Why CBA’s Mortgage Slump Is a Bellwether for Australian Housing

Profit Resilience Despite Falling Mortgage Demand

CBA’s $10.98 billion profit beat expectations because volume growth in business and consumer lending helped offset pressure on net interest margins, which slipped 3 basis points to 2.05 per cent. The bank also contained operating expenses to a 6 per cent rise, attributing the increase to inflation, technology investments and fraud-fighting costs. That expense discipline, combined with a lower-than-expected credit loss ratio, enabled CBA to lift its dividend by 4 per cent.

The Mortgage Freeze: Tax Overhaul and Rate Hikes Bite

The 15 per cent drop in mortgage applications since May is not seasonal noise. It lines up with the federal budget’s property tax changes—scrapping the CGT discount and grandfathering negative gearing—which effectively raise the cost of property investment. At the same time, the RBA’s three rate hikes earlier in the year and its signal of further tightening have eroded borrowing capacity. The result is a sudden contraction in housing credit demand that has hit all major lenders simultaneously. While Comyn stopped short of blaming government policy directly, the timing leaves little doubt that tax changes are a significant factor.

Stabilisation or False Dawn? Comyn’s Cautious Optimism

Comyn’s assertion that the “worst is already behind” the bank rests on a few data points: applications bottomed in early June and have stabilised since, and the RBA’s hold in August may signal a pause. However, the bank’s own base case assumes no rate cuts until 2027, which leaves households facing elevated repayments for another 12–18 months. The predicted 4–5 per cent mortgage growth in 2027 depends on buyers rushing in ahead of expected rate relief—a plausible but uncertain narrative.

Credit Quality: A Contradiction in the Numbers

Despite a 9 per cent rise in loan impairment expenses to $788 million, housing arrears of 0.73 per cent are historically low. Personal-loan arrears, however, climbed to 1.72 per cent, indicating that while homeowners are managing, unsecured borrowers are under more acute pressure. The bank’s provision coverage is strong, but a further rate hike or sharp rise in unemployment could expose vulnerabilities in home lending portfolios, especially among the 25–55 age group that Comyn identified as hardest hit.

The Competitive Squeeze Across the Big Four

With NAB and Westpac also reporting double-digit drops in mortgage applications, Australia’s largest banks face a battle for a shrinking pool of borrowers. Margin erosion is likely to intensify as lenders compete on rate discounts and cashback offers to defend market share. CBA’s relative stability in net interest margin—down only 3 basis points—may be tested if the pricing war escalates.

What CBA’s Results and Outlook Mean for Investors, Borrowers, and Banks

• For CBA investors: The 4% dividend hike and 77% payout ratio offer solid income, but watch for further margin compression if funding costs rise with any RBA hike. The next CPI print on 30 August and the RBA’s September minutes will clarify the rate outlook.
• For bank executives: With mortgage applications down 15–20% across the sector, pricing strategies need adjustment. Stress-test deposit rates and funding costs against a scenario where the cash rate reaches 4.6%, as flagged by the RBA, to avoid a sharper NIM squeeze.
• For home borrowers: CBA expects rate cuts in 2027, but the current 4.35% cash rate may stay flat until then. Compare variable rates with fixed-rate offers of 1–3 years, factoring in the $788 million increase in bank loan provisions as a signal of cautious lending appetite.
• For property investors: The scrapping of the 50% CGT discount and the grandfathering of negative gearing have fundamentally altered the tax equation. Reassess property portfolios using base indexation rather than the old discount, especially if the RBA hikes further, as this will raise holding costs and reduce after-tax returns.