Westpac ups interest rates for investors and owner occupiers

The variable interest rate for investor loans will rise to 5.95 per cent. Fixed rates are unchanged.

Given its market share this means the bank has effectively just hiked home loan rates for 21% of the owner-occupier home loan market – that’s one in five Australian residential mortgage holders.

The move will increase Westpac’s headline standard variable mortgage rate to 5.68 per cent for owner occupiers.

“While Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers”, Westpac consumer bank chief executive George Frazis said.

The bank, which also announced it is undertaking a $3.5 billion capital raising, said both measures were due to regulatory changes. The amount of capital that the banks need to hold against mortgages has increased by 50 per cent thanks to recent regulatory changes.

The government would have more to say on capital adequacy when its response to the financial system inquiry, chaired by the former banker David Murray, is made public, she said. “We acknowledge that it does impact customers, even in an environment where interest rates remain near historic lows”, Frazis said.

Markets continue to expect another quarter of a percentage point cut in official interest rates but economists now believe the Reserve will sit tight.

Depositors, on the other hand, will receive a 25 basis point increase on selected new term deposits, effective from 16 October.

It had already raised $2bn in May and $1.32bn in August after the regulator called for banks to bolster their balance sheets.

Westpac reported a net profit of $3.64 billion at 31 March 2015.

Operating expenses rose 5 percent to $8.6 billion, which the bank said mainly reflected spending on initiatives to boost wealth, small-to-medium enterprise and digital revenue.

The offering takes the total capital raised by Australia’s biggest four banks to nearly A$20 billion this year.