Investor lending retreat deepens housing credit slowdown

However, the stronger headline result masked a further loss of momentum in housing finance, which accounts for around 60 per cent of total credit.

Housing credit increased by 0.4 per cent in August, down from 0.5 per cent in July, and on a more precise basis, monthly growth eased from 0.46 to 0.44 per cent, lowering the annual pace from 7.5 to 7.3 per cent.

Investor borrowing loses pace

The investor segment was the clear source of weakness in the housing-credit figures, having slowed sharply after posting robust growth through the first half of 2026.

Investor credit had grown at an average monthly rate of 0.8 per cent during the first six months of the year, with that pace then halving to 0.4 per cent in July before easing again to 0.3 per cent in August.

Westpac economist Ryan Wells said the rapid deceleration in investor borrowing had become the dominant feature of the mortgage-lending data.

“Investor credit growth remains at the forefront of the housing credit story, with the monthly growth pace more than halving over the past two months. Meanwhile, owner-occupier credit growth remains stable,” Wells said.

The shift follows the federal budget’s changes to investor tax settings, announced in May.

Wells said the delayed weakening in investor credit was consistent with the normal transmission period between policy announcements and recorded lending data.

“One of the main takeaways from today’s data is that the slowdown in housing credit growth is looking more assured, though at this stage, it remains largely centred on investors rather than owner-occupiers,” he said.

“This suggests that tax changes for investment properties are likely to be the main catalyst, with the timing of the shift, a couple of months after the federal budget announcement in May, consistent with the typical lags in the credit delivery process.”

Rising rates set to widen pressure

While the August data indicates investors were the first group to pull back, Westpac expects the slowing in housing credit to spread more broadly as the higher-rate environment works through borrower capacity and demand.

The RBA has lifted the cash rate four times in 2026, including its latest increase this week, tightening repayment conditions and reducing the amount many borrowers can service.

A further increase is expected in November, according to Westpac’s outlook.

Wells said the cumulative effect of higher interest rates was likely to exert greater pressure on housing credit in the coming months.

“With the RBA raising the cash rate yesterday and a follow-up rate hike now expected in November, the higher interest rate environment is set to weigh more broadly on housing credit over the period ahead,” Wells said.

The data arrives as other measures point to weaker mortgage demand.

Equifax reported total mortgage demand fell 14.1 per cent year on year in August, its fifth consecutive monthly decline, while major banks have reported substantial falls in applications across owner-occupier and investor lending following the budget.

APRA’s latest monthly authorised deposit-taking institution statistics have also shown that mortgage growth at the country’s largest lenders has stalled.

Business credit remains supportive

Business credit remained the counterweight to softer housing lending, although its monthly growth has also moderated after a mid-year lift.

Business credit growth eased from 1.2 per cent in May to 0.9 per cent in August.

Westpac said the result nevertheless remained strong relative to longer-run trends.

“This is still a fairly strong result by historical standards, suggesting firms are continuing to borrow for both working capital and investment opportunities,” Wells 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.”

[Related: Number of borrowers unable to refinance spikes]