Australia’s property market is facing growing pressure as lending to residential investors has recorded its sharpest quarterly decline since official records began, while an increasing number of homeowners are falling behind on mortgage repayments. The latest figures point to a changing housing market in which higher interest rates, tax reforms and falling property prices are influencing investment decisions and household finances. Data from the Australian Bureau of Statistics (ABS) and the Commonwealth Bank of Australia (CBA) highlight the challenges facing both property investors and ordinary borrowers, raising questions about the direction of the housing sector and the wider economy.
The value of new loans to property investors plunged by nearly one-third during the three months to September, marking the largest quarterly decline in records dating back to 2002. According to the ABS, the fall was almost twice as large as the previous record quarterly contraction. The figures indicate a significant reduction in investor demand for residential property, with landlords becoming more cautious about purchasing homes amid changing financial conditions and expectations about future property prices.
The decline in investor lending comes at a time when Australia’s largest home lender, CBA, has reported a rise in mortgage arrears among its customers. Its latest quarterly trading update showed that the proportion of borrowers who were at least 90 days behind on their mortgage repayments increased from 0.73 per cent to 0.8 per cent of total lending. Although the latest figure remains relatively small as a share of the bank’s overall mortgage portfolio, it represents the highest level recorded by the lender in 12 years.
The last time CBA reported a higher arrears rate was in 2014, according to its previous trading updates. The increase suggests that more households are experiencing difficulties managing their mortgage commitments as borrowing costs remain elevated and household budgets face pressure from living expenses.
Nathan Zaia, a senior equity analyst at Morningstar, said mortgage arrears were rising across the Australian banking sector and warned that the trend might not have reached its peak. He observed that the number of borrowers falling behind on home loan payments had been increasing, although the recent rise had started from an unusually low level.
Zaia noted that Australia had experienced an extended period of exceptionally low mortgage arrears, making some increase less surprising as financial conditions changed. His assessment suggests that the current deterioration should be viewed against the relatively strong repayment performance recorded by borrowers over previous years. Nevertheless, continued increases could create additional challenges for lenders and households if economic pressures persist.
Nico de Lange, director of financial institution ratings at S&P Global, offered a more measured assessment of the banking sector’s overall position. He said that, despite the rise in arrears, there was not yet evidence of significant financial stress across the banking industry as a whole. However, he highlighted the importance of monitoring the situation following five interest rate increases during the year.
The latest developments have placed renewed attention on the effects of monetary policy. Higher interest rates increase the cost of servicing variable-rate mortgages and can also make it more difficult for prospective buyers to qualify for new loans. For existing homeowners, the combination of higher repayments and other household expenses can reduce the amount of disposable income available for everyday needs.
The ABS figures show that the decline in investor activity was substantially greater than the reduction in lending to owner-occupiers. New loans to people purchasing homes to live in fell by 5.3 per cent during the September quarter. Overall, the value of new housing loans declined by 15 per cent, reflecting weaker activity across different parts of the residential property market.
Lending to first-home buyers also weakened, falling by 8.6 per cent during the quarter. The decline suggests that higher borrowing costs and uncertainty about future property prices are discouraging some potential homeowners from entering the market. While first-time buyers have been affected, the fall was considerably smaller than the contraction in investor lending, indicating that different groups of borrowers are responding differently to the changing market.
The reduction in investor demand is closely linked to changes announced by the Albanese government in its May budget. The reforms included changes to the taxation of capital gains for property investors and a ban on negative gearing for new landlords purchasing existing homes. These measures have become a central issue in the debate over housing affordability, investment incentives and the supply of residential properties.
Negative gearing allows property investors to deduct eligible rental property losses against other taxable income. The government’s decision to restrict the arrangement for new investors buying existing homes is intended to change the financial incentives that influence property purchasing decisions. The capital gains tax changes are also expected to affect the returns investors receive when they sell properties.
The government has argued that the reforms are designed to improve access to housing for first-time buyers by reducing competition from established property investors. With investor demand declining sharply, ministers have pointed to the latest figures as an indication that the changes may be influencing the market.
Treasurer Jim Chalmers defended the government’s approach, saying the ABS data showed that first-home buyers were facing less competition from investors. He argued that the reforms were intended to help more Australians enter the housing market and that their benefits should be assessed over several years rather than a few months.
Chalmers said first-time buyers would have to compete less with established investors for the limited supply of existing homes. He maintained that the government was beginning to see evidence of this shift in the latest lending figures. His comments reflect the administration’s wider argument that improving housing affordability requires changes to the tax arrangements that have shaped property investment for many years.
However, the sharp fall in investor lending has also prompted criticism from the opposition. The Coalition has promised to reverse the investor tax changes if it returns to government, arguing that the measures could discourage investment at a time when Australia needs additional housing.
Andrew Bragg, the shadow housing minister, criticised the government’s reforms, saying higher housing taxes were discouraging investment when the country needed more homes. He called for the measures to be repealed, warning that reducing investor participation could have negative consequences for housing supply.
The debate highlights a difficult policy challenge for Australia. Governments are under pressure to make homes more affordable for first-time buyers while also encouraging the construction and availability of additional housing. Measures that reduce investor demand may create opportunities for some buyers seeking to purchase existing properties, but concerns remain about whether weaker investment could affect the supply of rental accommodation and future development.
The ABS data also showed that lending to investors seeking to build new homes declined by 12 per cent during the quarter. This figure adds another dimension to the debate because investment in new construction can contribute directly to the supply of housing. A prolonged reduction in this type of lending could affect the willingness of investors to finance residential development, although the latest figures alone do not establish the long-term consequences.
The wider property market is also being influenced by expectations about prices. The ABS said investor activity appeared to be responding to factors beyond increasing borrowing costs, including the potential impact of tax changes and expectations of lower property values. When investors anticipate weaker prices, they may delay purchases or reconsider the financial risks associated with owning rental properties.
For households already carrying mortgages, the outlook is equally important. A rise in arrears does not automatically indicate a banking crisis, particularly when the overall proportion of seriously overdue loans remains limited. However, continued increases could signal that more borrowers are struggling to absorb the effects of higher repayments and other financial pressures.
Banks, regulators and policymakers will therefore be watching the coming quarters closely. The direction of interest rates, employment conditions, household incomes and property prices will all influence whether mortgage arrears continue to rise or stabilise. The performance of investor lending will also help indicate how landlords are responding to the government’s tax changes and broader market uncertainty.
Australia’s housing sector now faces competing pressures. First-home buyers are seeking greater opportunities to purchase properties, investors are reassessing the costs and returns of ownership, and existing mortgage holders are dealing with higher financial commitments. The record decline in investor lending and the increase in overdue home loan repayments illustrate how these pressures are reshaping the market.
The latest figures have intensified the political debate over housing policy, but the longer-term effects of the reforms remain uncertain. Whether reduced investor competition translates into more affordable homeownership, and whether weaker investment affects rental supply or new construction, will depend on how the market develops over the coming years. For now, the data provide a clear indication that Australia’s property market is undergoing a significant adjustment, with consequences for buyers, landlords, homeowners and the financial institutions that support them.

























































































