Westpac Bank has signalled it will lift its home loan rate to beef up capital reserves to guard against future financial crises.
The major bank will raise its variable rate for mortgage loans on owner occupied property by 20 basis points during the middle of next month.
The hike will take their standard variable mortgage rate to 5.68 per cent for owner occupiers while variable interest rates for investors will rise to 5.95 per cent.
Westpac’s fixed interest rates will remain unchanged.
Westpac are hoping to raise $3.5 billion to boost its capital reserves in the wake of recent crackdowns from the Australian Prudential Regulation Authority (APRA).
Head of Westpac’s Consumer Bank George Francis told the ABC that APRA’s crackdown has meant big banks have had to hold more than 50 per cent of capital against mortgages than they did previously.
"As we have always said publicly, while Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers," he said.
"This is a difficult decision and one that is not taken lightly."
All major banks have been raising extra capital since APRA have made demands to guard againt risky lending in the environment of ongoing low interest rates.
Economists say if the other major banks follow suit and lift their rates too, it places more pressure on the Reserve Bank to cut their official rate again to new record lows.
The RBA has been reluctant to cut rates since the last time they did in May partly because f fears of a housing bubble, but with banks lifting rates it could see the heat come out of the housing sector which is already showing signs of cooling.