Westpac expects 11 per cent house price fall, posts $6.8 billion profit

Westpac reported a $6.8 billion profit for the year to September. That result was 1 per cent lower than the previous year. The figure shows the bank remained highly profitable despite higher interest rates, cost-of-living pressure and economic uncertainty.

At the same time, Westpac forecast a substantial housing downturn. It expects Australian house prices to fall 10.9 per cent from March 2026 to March 2027. National prices were already 5.2 per cent below their March peak in September.

The forecast matters because housing is closely linked to household wealth, borrowing and bank lending. Westpac also expects interest rates to remain elevated into 2027. Its profit was supported partly by stronger business and institutional lending, although its net interest margin fell and credit impairment provisions increased.

The housing market had already lost ground before Westpac issued its forecast. In September, national house prices were 5.2 per cent below the peak reached in March. That is the fall recorded so far in the article’s timeline.

Westpac then predicted prices would drop another 10.9 per cent from March 2026 to March 2027. This is a forecast for a future period, not a claim that the total decline has already happened. The two figures describe different periods and should not simply be added together.

The outlook reflects expectations that interest rates will remain elevated into 2027. Higher rates can reduce what households can borrow and increase repayment costs. Weaker borrowing capacity can reduce demand for homes, while financial pressure may encourage some owners to sell.

Higher interest rates affect housing through household budgets and borrowing power. When mortgage rates rise, borrowers face larger repayments. New buyers also qualify for smaller loans because lenders test whether repayments remain affordable. This can reduce the prices buyers can offer.

For example, a household that could previously manage a larger mortgage may need to target a cheaper home after rates rise. Other buyers may delay purchasing altogether. Sellers then face weaker competition, so homes may take longer to sell or attract lower offers. This is the usual mechanism, although individual markets can behave differently.

The article links Westpac’s forecast to expectations that rates will remain elevated into 2027. National house prices were already 5.2 per cent below their March peak in September. Westpac expects a further 10.9 per cent fall from March 2026 to March 2027.

The Reserve Bank of Australia, or RBA, is Australia’s central bank. One of its important roles is setting the official interest rate. That decision influences borrowing costs across the economy, including mortgage and business loan rates. The article refers to the RBA’s next rate decision and says a fifth rise this year was widely expected.

When inflation remains above the RBA’s target, higher rates can help slow spending and borrowing. Households may spend less because loans cost more. Businesses may also delay investment. Reduced demand can ease pressure on prices, although it can also make life harder for borrowers.

The article says price growth remained above the RBA’s target and that this challenged households and businesses. Westpac expects interest rates to remain elevated into 2027. It also forecasts house prices falling 10.9 per cent from March 2026 to March 2027.

A bank’s net interest margin, or NIM, shows how much it earns from interest on loans compared with what it pays for deposits and other funding. It is usually expressed as a percentage of interest-earning assets. The measure matters because lending and funding are central to a bank’s earnings.

Westpac reported that its NIM fell by 3 percentage points to 1.86 per cent in the second half of 2026. It blamed strong lending competition and more customer accounts qualifying for savings bonus rates. Competition can push loan rates down, while higher savings rates increase the bank’s funding costs.

A lower margin can reduce profit from each dollar of lending. Westpac partly offset that pressure through stronger business and institutional lending, which grew 12 per cent and 18 per cent. Even so, its annual profit fell 1 per cent to $6.8 billion.

Profit measures what remains after a bank records its revenue and expenses for a period. Credit impairment provisions are an expense set aside for possible future losses when borrowers fail to repay. Increasing them can reduce profit, but it does not mean the bank has already lost all that money.

Westpac still earned $6.8 billion for the year to September. Stronger business lending and institutional lending helped support earnings. At the same time, its credit impairment provisions increased to $5.2 billion because of economic and geopolitical uncertainty affecting energy-intensive sectors and discretionary spending.

These figures show two conditions can exist together: current banking operations can be profitable while risks are rising. Westpac said credit quality still reflected customer resilience. Mortgage balances in hardship remained low at 0.6 per cent, and 86 per cent of accounts were ahead on repayments, including offset balances.

Interest rates affect the cost of borrowing and the reward for saving. Higher rates generally make mortgages and business loans more expensive, while improving returns on some savings. Lower rates usually make borrowing easier and can encourage spending and investment. These changes influence demand across the economy.

Banks connect households and businesses to this process. They lend money and pay interest on deposits, earning a margin between the two. When rates rise, borrowers may cut spending, while savers may receive more interest. Banks can also face stronger competition for deposits and loans, affecting their profitability.

The article says Australian price growth remained above the RBA’s target, helping explain expectations of another rate rise. It also reports strong business investment and an economy holding up relatively well. Yet elevated rates are expected into 2027, with Westpac forecasting a 10.9 per cent house price fall by March 2027.