Westpac is lifting interest rates on fixed-rate, interest-only home loans, as lenders respond to the regulator's attempt to dampen risks in the housing market.
The country's second largest bank on Monday raised some fixed rates by as much as 0.3 percentage points, in changes that will affect customers taking out new interest-only loans.
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The biggest increases will be for owner-occupiers who are borrowing on an interest-only basis, but property investors will also be affected by the changes.
At the same time, Westpac is also reducing some fixed interest rates, in an attempt to encourage more borrowers to pay back their loan principal as well as interest.
The increases come three days after Commonwealth Bank also raised fixed rates on Friday, targeting interest-only loans and property investor loans.
Westpac signalled the rate rises were a response to changes in regulation, which have required banks to put the brakes on interest-only lending because it is seen as riskier.
"In response to recent regulatory changes, we have both decreased and increased some of our fixed rates for customers who wish to fix their home loan," a bank spokeswoman said.
"We are reducing some of our fixed rates by up to 0.31 per cent for customers who make principal and interest repayments, to encourage customers to pay down their home loan in this low interest rate environment."
![Westpac said its fixed rate moves were made in response to changes in regulation.](/web/20170425090350im_/http://www.theage.com.au/content/dam/images/g/v/0/l/3/n/image.related.articleLeadwide.620x349.gvr2jc.png/1493036036049.jpg)
Under a policy unveiled last month, banks are being forced to tighten their interest-only lending so that it accounts for no more than 30 per cent of new mortgage lending, compared with nearly 40 per cent of outstanding home loans currently.
The changes, which have already led to banks raising some interest rates, were introduced by the Australian Prudential Regulation Authority in response to "heightened risk" in the mortgage market.
As Westpac's changes apply to fixed rates, not variable rates, they will only affect customers taking out new fixed-rate loans.
For owner-occupiers, Westpac will increase interest-only fixed rates by 0.3 percentage points for one-year and two-year loans, to 4.46 per cent.
Its three-year interest-only loan for owner-occupiers will also rise by 0.3 percentage points, to 4.56 per cent. Its five-year loan for this type of customer will rise by the same amount, to 4.86 per cent.
The increases for property investor loans are more modest. Westpac's rates on one, two, three, and five-year interest-only loans for investors will rise by 0.1 percentage points.
It will also lower fixed rates on two and four-year loans for borrowers who take out a principal and interest loan.