Australia’s largest lender just delivered an $11 billion profit, the biggest result ever posted by an Australian bank, while home loan application volumes dropped 15% since May. The split is sharper when you look at who’s pulling back: investor applications are down 28%, owner-occupier applications down 9%.
The mismatch raises a blunt question: if loan demand is falling, why are profits accelerating?
The margin story behind the headline
CBA’s net interest margin, the gap between what it earns on loans and what it pays depositors, actually fell 0.03 percentage points to 2.05% over the financial year, reflecting competition in the sector. But total home loan volume still grew 7.2% to $680 billion, and profit climbed 7% year-on-year.
The driver: owner-occupier loans are stickier and carry higher average balances than investor loans, so a portfolio weighted toward owner-occupiers generates more absolute income even if the margin per loan tightens slightly. When investors exit faster than owner-occupiers, the mix shift favours lenders.
CBA now forecasts housing credit growth will slow to 4-6% next financial year, down from this year’s 7.2%. That’s still growth, just at a lower rate, which means the revenue base keeps expanding even as application volumes moderate.
Arrears are climbing from a low floor
Home loans more than 30 days in arrears rose to 1.33%, up from 1.26% at the end of the previous financial year. Loans more than 90 days overdue climbed to 0.73% from 0.7%.
Those are small absolute moves, but the direction matters. The bank flagged that hardship cases have increased over the past six months as interest rate rises and cost-of-living pressure hit unevenly.
Still, 85% of mortgage customers are ahead on repayments, including 68% of borrowers in negative equity. Negative equity, where the loan exceeds the property value, sits at 0.5% of the book, down from the previous year. Of those loans, 84% are in NSW and Victoria, where prices have fallen roughly 4% from late-2025 peaks.
Key numbers
- Investor loan applications down 28% since May; owner-occupier applications down 9%
- Net interest margin 2.05%, down 0.03 percentage points year-on-year
- Arrears over 30 days: 1.33%, up from 1.26%
- Negative equity loans: 0.5% of the book, 84% in NSW and Victoria
- Forecast housing credit growth next financial year: 4-6%
The divergence and what drives it
Investor retreat accelerated after May’s federal budget removed negative gearing for existing properties and lifted capital gains tax on investment property sales. Owner-occupiers face the same interest rate environment but don’t carry the same tax disincentive, so their pullback has been more gradual.
For lenders, that creates a temporary pricing window. When a large cohort exits the market quickly, competition for the remaining borrowers eases. Lenders can hold rates slightly firmer without losing share, especially when owner-occupiers, who tend to move less frequently and carry larger loans, make up a bigger portion of new business.
The question is how long that window stays open. If investor demand stays suppressed and owner-occupier volumes keep falling, margin pressure will eventually return as lenders compete for a shrinking pool.
Supply constraints and the longer cycle
CBA’s chief executive noted that short-term price falls are “overshadowed by a more significant problem”, the nation’s inability to build homes quickly and affordably. Rising construction costs, a gap between housing approvals and completions, and declining construction productivity are all constraints.
Treasury modelling shows the new tax rules, which exempt new builds from the negative gearing changes, would still result in 35,000 fewer homes being built over the next decade, because the broader removal of investor incentives outweighs the carve-out for new construction.
That supply shortfall underpins long-term price support, which keeps loan books healthier and limits the tail risk for lenders even as short-term demand softens. For more on how supply constraints shape the investment case, see Foreign capital housing supply: why institutional money is filling the gap.
Rate outlook and credit growth scenarios
CBA doesn’t expect the RBA to move rates for the rest of the year, but has pencilled in one cut by June next year. If that plays out, serviceability improves modestly and application volumes could stabilise or tick up.
If rates stay higher for longer, the gap between investor and owner-occupier demand could widen further, keeping the margin-friendly mix shift in place but eventually dragging total credit growth below the 4-6% forecast range.
Either way, the structural supply problem limits downside: even if prices fall another few percent in the near term, the chronic undersupply means any sustained demand recovery, from rate cuts, migration, or fiscal stimulus, runs straight into a housing stock that can’t keep pace. That dynamic keeps loan-to-value ratios from deteriorating sharply and arrears from spiking.
For context on how house price falls and policy risks interact, see our earlier breakdown.
What this means for borrowers and investors
If you’re an owner-occupier comparing rates: lenders are comfortable holding pricing steady for now, so you won’t see material cuts until the RBA moves or competition intensifies. Pressure-test your serviceability buffer at current rates plus 1-2 percentage points.
If you’re an investor on the sidelines: the tax changes have cleared out a chunk of the field, which means less competition for stock in some segments. But the same changes also reduce the after-tax return on existing properties and tighten the yield calculation. Run the numbers without negative gearing and with the higher CGT before assuming lower entry prices offset the policy hit.
If you’re watching arrears and credit risk: the rise is real but gradual, and most borrowers are still ahead. The bigger risk is a second-order shock, unemployment rising sharply, rates climbing again, that tips the marginal cohort into hardship faster than the current pace.
Start here: if you’re refinancing or applying for a new loan in the next six months, model your repayments at 6.5-7% even if you’re being quoted lower, and confirm you can still service the loan if rates don’t fall until mid-next year. That’s the scenario lenders are quietly pricing for, and it’s the one that keeps their profit forecasts intact even as volumes slide.
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General info, not financial advice.
