NAB|15% Headline Hides a 35% Investor Lending Slide

The Number NAB Gave the Market

National Australia Bank told investors this week that home loan applications fell 15 per cent in the June quarter compared with the March quarter. NAB's business and private banking boss, Andrew Auerbach, linked the drop to a trifecta of geopolitical volatility, rising interest rates, and changes to property tax concessions in the federal budget. On its face, that is a bank flagging softer volumes. But the comparison point NAB chose is doing a lot of work here, and that is where this story actually starts.

The obvious question is whether 15 per cent captures how bad things are, or understates it. NAB's figure blends all mortgage lending together, investor and owner-occupier alike. That matters, because the tax changes in the federal budget were specifically aimed at property investors through capital gains and negative gearing treatment. A blended figure dilutes the category that was hit hardest.

What the Comparison Hides

Investment bank Barrenjoey has been tracking this separately, and its numbers tell a sharper story. Since early February, when the Reserve Bank delivered its first rate rise of the year, investor home lending has sunk 35 per cent in dollar terms. That is more than double the headline NAB figure, because NAB compared June against March, a quarter that still included booming growth before the RBA started hiking. Measuring from the actual peak, not from a quarter that already had the tax changes baked into a partial slowdown, more than doubles the scale of the pullback.

The pain is not confined to investors either. First home owner mortgages are down 23 per cent from their peak, according to the same tracking. Barrenjoey's senior banking analyst Jon Mott and MST Financial's Brian Johnson, who have both been following the weekly data, describe a trend that keeps deteriorating rather than stabilising. Johnson put it bluntly: based on every data point, every week it is just getting worse.

Why Banks Are Cutting Anyway

Here is the part that should reframe how a viewer reads this. The Reserve Bank's cash rate has not come down. Governor Michele Bullock has explicitly said the board remains prepared to raise the cash rate further if inflation does not cooperate. Yet all four big banks, NAB included, have already started cutting fixed rates on new loans in the past week. That is not the behaviour of banks waiting for the RBA to ease. It is banks fighting each other for a shrinking pool of borrowers before the RBA has given them any cover to do so.

Westpac has gone further than just pricing, halving deposit requirements for some investor loans from 10 per cent to 5 per cent and stretching the interest-only term from 10 to 15 years. That is a risk-criteria loosening, not just a rate war, and it signals the banks see the volume problem as more urgent than the tax and rate settings would suggest on paper.

What This Means Going Into Reporting Season

There's a second-order consequence worth sitting with. Many first home buyers entered last year using the government's expanded 5 per cent deposit scheme, right as prices were near their peak. With house prices now falling, a meaningful share of those buyers are at risk of negative equity, where the loan balance exceeds the home's value. That is a policy that was designed to help first home buyers get in, now colliding with the price falls the same policy environment helped trigger.

NAB and its big four peers report full trading updates in the coming weeks, and that is the checkpoint that will show whether the fixed-rate cuts and looser lending criteria are stabilising volumes or simply compressing bank margins without reversing the slide. For a holder of NAB shares, the 15 per cent headline is not the risk to price in — the 35 per cent investor-lending decline and the bank's willingness to cut rates without an RBA cut to lean on are the numbers that matter more for margin and volume through the next reporting cycle.