Australia’s credit engine is losing momentum as a sharp retreat in investor activity reaches official lending data.
Australia’s credit growth slowed in July as weaker investor borrowing begins to filter into the Reserve Bank of Australia’s (RBA) lending data, reinforcing evidence that mortgage demand has cooled significantly following higher interest rates and changes to investment-property tax settings.
The RBA’s July credit aggregates, processed by Westpac, showed that total private-sector credit rose 0.6 per cent for the month, down from the 0.8 per cent monthly increases recorded in May and June and 0.1 percentage point below market expectations.
While credit expansion remained firm by longer-run standards, Westpac said July marked a more sustainable pace after the rapid growth recorded in recent months.
“Private sector credit growth readings of 0.8 per cent mth over the past couple of months had looked unsustainable, not least given the slowing housing market, which accounts for the lion’s share of overall credit outstanding,” Westpac said.
“Come July, the pace has now dropped to 0.6 per cent mth, in line with our expectations but 0.1ppt below the market consensus.”
Investor lending drives housing slowdown
Housing credit, which makes up around 62 per cent of total credit outstanding, increased 0.5 per cent in July, easing 0.1 percentage point from June.
On Westpac’s unrounded measure, the 0.49 per cent monthly increase was the slowest recorded since March 2025.
The moderation was concentrated in investor lending, with the investor credit growth falling by 0.3 percentage point to 0.46 per cent in July, its weakest monthly pace in around two years, while owner-occupier credit growth held broadly steady at 0.46 per cent.
Westpac said the divergence between the two borrower segments indicated that recent policy changes were having a more immediate effect on investment decisions.
“Housing credit was the main source of weakness, with investor credit growth beginning to adjust lower in response to higher interest rates, lower house prices and, most importantly, tax changes for investment properties,” the bank said.
“We had expected a slowing in housing credit growth to crystalise for some time. While higher interest rates and a softer economic outlook did not trigger the change on its own, the sudden shift in investor credit relative to much more stable owner-occupier credit suggests that tax changes for investment properties are likely to be the main catalyst in the current economic environment.”
The lender added that the movement had emerged within a time frame consistent with the lag between a borrower’s decision to seek finance, loan settlement, and the eventual recording of debt in the RBA’s credit figures.
“The timing of the shift – a couple of months after the Federal Budget announcement in May – is also consistent with the typical 2–3 month lag in the credit delivery process,” Westpac said.
Business credit cushions broader slowdown
Despite the weakening in housing finance, business lending remained the primary contributor to total credit growth in July.
Other personal credit also rose 0.3 per cent over the month, retreating from its 0.9 per cent increase in June.
Westpac said the overall monthly credit gain remained elevated in a historical context, but added that it expected housing lending to slow further.
“We expect the effects of higher interest rates, lower house prices and, most importantly, tax changes for investment properties to flow through in the coming months, pushing housing credit growth lower,” Westpac said.
“Going forward, we think the divergence between housing credit and business credit will persist, as the current housing market headwinds flow through more fully into the housing credit numbers.”
The RBA data follows a sharp slowing in mortgage-book growth among large lenders.
APRA’s July ADI statistics showed that the combined housing-loan books of the nation’s top 10 lenders grew by a modest $6 billion during the month, with Macquarie Bank alone accounting for $2.22 billion of the figure.
Excluding Macquarie, lending growth across the group was markedly weaker than the month prior, with mortgage-book contractions reported by National Australia Bank (NAB), Bendigo and Adelaide Bank, Suncorp Bank, the Bank of Queensland (BOQ), and HSBC Bank Australia.
This followed a much stronger June result, when the Commonwealth Bank of Australia (CBA), Westpac, NAB, Australia and New Zealand Banking Group (ANZ), and Macquarie collectively added about $16 billion to their mortgage books.
The decline in funded lending has been preceded by a fall in mortgage inquiries.
Equifax found overall mortgage demand was down 16.4 per cent year on year in July, following annual declines in April, May, and June, while first home buyer demand fell 19.1 per cent.
Major-bank application data has similarly pointed to a softer pipeline, with investor demand generally falling faster than owner-occupier demand after the May federal budget.
[Related: Non-banks reveal how they’re scaling in a mortgage downturn]
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