Australia's biggest banks sold off as mortgage risks mount
Australia's banks have lost their safe-haven glow as NAB fell 23% and mortgage risks spread through the sector. Investors are now pricing in slower lending, weaker housing and lower profits.
Australia's biggest banks are being sold off after years of being treated as reliable dividend machines, and the reassessment is turning on the housing market that powered their profits. Since late February, National Australia Bank has fallen 23%, Westpac nearly 14.5%, ANZ 11.2% and Commonwealth Bank 5.6%, a sharp reversal for a sector that had outpaced the broader market earlier in 2025 by roughly double.
The selloff reflects more than a temporary wobble. A slowdown in mortgage lending, higher provisions for souring loans and rising interest rates have darkened the outlook for the Big Four, which have long been valued for stability and income. Mortgage lending makes up around 60% of the banks’ combined credit books, and regulatory data show home lending can account for as much as 65% of the major lenders’ portfolios. In a market this exposed to housing, weaker loan growth can quickly feed through to earnings, margins and investor sentiment.
The Reserve Bank of Australia added to that pressure on May 5, raising the cash rate by 25 basis points to 4.35%. Lenders have been passing the increase through to mortgage customers, raising repayment burdens at a time when the A$2.4 trillion mortgage market is already under scrutiny. Morgan Stanley sees Australian house prices falling 5% to 10%, which would mark the largest decline in decades and further cool demand for new loans. The change has been so abrupt that one analyst compared it with other major turning points in the past 25 years.
The sector is still making money, but the trend has weakened. KPMG said the Big Four banks reported combined profit after tax of A$15.2 billion in their latest half-year results, down 2.1% from a year earlier, while average return on equity fell to 10.7%. That leaves investors asking whether the old Australian banking model, built on housing growth and dependable payouts, can keep delivering in a slower mortgage market. For other banking systems that rely on property-driven lending, the message is clear: when housing turns, safe-bet valuations can disappear fast.
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