Westpac Banking Corp's mortgage broking team has written to clients to outline some material changes to interest only lending.
Street Talk understands that Westpac brokers told clients on Tuesday that the bank would curb lending for new and existing interest only borrowers, reducing the maximum loan to value ratio to 80 per cent.
The bank said that rule applied for both new loans and loan increases as of Monday, June 5.
It said the only exceptions were for building and construction loans where interest only would be available during the construction period before switching to principal and interest repayments, for up to 12-months of parental leave, and bridging loans.
Westpac also said it would waive fees for clients switching from interest only repayments to principal plus interest repayments.
The bank said the policy changes were aimed at meeting regulatory requirements.
"These changes will help us continue to meet our regulatory requirements and apply responsible lending practices in assessing a customer's ability to service existing and proposed debts," Westpac's brokers told clients.
It's the latest move by Australia's second largest bank, and comes as its Big Four rivals also review their lending practices.
Meanwhile, ANZ Banking Group also said it will offer incentives for property borrowers to switch from interest-only loans and tougher lending conditions, including a minimum board or rental expense of $375 for borrowers not living in their own home, such as investors living with their parents.
