National Australia Bank (ASX:NAB) has reported a stronger June quarter profit, but the lender has taken a notably more cautious view on the housing market as higher interest rates, recent property tax changes and geopolitical uncertainty weigh on borrowing demand.
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NAB reported a third quarter cash profit of $1.83 billion, up 4% from the same period a year earlier and 32% above the average quarterly profit recorded during the March half. The improvement was largely driven by lower bad debt charges.
Chief executive Andrew Irvine said customers were facing a more uncertain environment, pointing to higher interest rates, changes to housing taxation and the ongoing fallout from the Middle East conflict.
The more significant signal from the update, however, was NAB’s housing credit forecast. The bank now expects overall housing credit growth of just 2.5% in FY27, substantially below forecasts from its major-bank peers.
NAB expects investor lending to contract 1.4%, while owner-occupier lending is forecast to grow 4.5%.
That outlook reflects what is already happening across NAB’s mortgage pipeline. Home loan applications fell 15% quarter on quarter in the June quarter, with investor applications down 17% and owner-occupier applications down 14%.
The weakness is not isolated to NAB. Westpac has reported a 20% decline in applications, CBA a 15% fall and ANZ a 12% decline, with the banks pointing to higher rates and the federal government’s housing tax changes.
July data from Equifax added to the concern, showing overall mortgage demand falling 16.4%, while first-home buyer demand dropped 19.2%.
NAB is therefore entering a more competitive lending environment, with banks chasing fewer new mortgages. Its net interest margin fell two basis points to 1.79%, as lending competition offset some of the benefit from higher returns on hedges.
Credit quality is another area investors are watching. NAB increased collective provision charges to $119 million during the quarter, compared with $39 million previously, citing deterioration in the quality of its performing loan book.
Impaired loans stood at 0.3%, compared with 0.25% a year earlier, although this was slightly better than the previous quarter.
The combination of weaker mortgage demand, tighter margins and emerging credit stress presents a more difficult backdrop for NAB despite the headline profit improvement.
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