SYDNEY, Aug 13 (Reuters) - Australian lender ANZ Group ( ANZGF ) said on Thursday home loan applications had slumped 12% since the Labor government scrapped lucrative property investment tax concessions, as the bank reported a A$1.9 billion ($1.3 billion) cash earnings for the third quarter.

ANZ, the smallest of Australia's "Big Four" lenders by market capitalisation and mortgage share, became the fourth major bank to flag the hit created by the May Budget to residential housing borrowing demand.

The A$1.9 billion profit for the three months to end-June was helped by a 1 basis point increase in its net interest margin, a key profitability measure, to 1.54% during the quarter.

ANZ's shares rose by up to 3.4% early on Thursday, outperforming a 0.4% decline in the S&P/ASX200.

The share price increase was attributed by analysts to ANZ reporting a 3% decline in costs to A$2.75 billion for the quarter, not taking into account a NZ$125 million ($73.3 million) class action settlement.

"We think the market should receive well the better performance on costs," Citigroup analyst Thomas Strong said.

ANZ recorded a A$102 million bad-debt charge for the quarter, well below analysts' forecasts of up to A$205 million.

The figure helped boost the bank's bottom line as non-performing loans were stable and did not grow despite three interest rate rises in Australia this year.

Australia's major banks have said home loan applications have fallen between 12% and 20% since the centre-left Labor government abolished some tax breaks on property investment.

Auction clearance rates are at six-year lows and average property prices are down about 2% over four months, according to data from property consultant Cotality.

Australia's top four banks control more than 70% of the national mortgage market and residential lending is a key driver of earnings for the sector.

ANZ said growth in lending and a modest improvement in margins supported earnings during the third quarter, as net interest income, excluding markets, rose 2% from the first-half quarterly average.

Its common equity tier 1 (CET1) ratio, a closely watched measure of spare cash, stood at 12.51% as at June 30.

Jefferies raised its 2026 and 2027 earnings-per-share forecasts for ANZ by 2% each, while reiterating its "hold" rating, the brokerage said in a client note.

($1 = 1.4160 Australian dollars)

($1 = 1.7065 New Zealand dollars)