Westpac hikes two and three year fixed rates as home lending booms

Westpac has raised some of its fixed-rate mortgages as the end nears for the ultra-cheap Covid-era loans.

Banks are raising rates as the red hot property market seems new home lending surging: Picture: Joel Carrett

Westpac raised its two- and three-year fixed rates at the bank and its subsidiaries, marking a tightening of credit as the end nears for the ultra-cheap lending released early in the pandemic.

The move comes as new data from the prudential regulator reveals the size of the pandemic boom in new home lending, pushing beyond $1.2 trillion.

The bank raised the two- and three-year home loan rates by 0.10 per cent on Tuesday, coming just weeks after the Commonwealth Bank hiked its three- and four-year rates.

Since then nine other banks have raised three-year rates.

The move takes Westpac’s record low two-year rate to 1.89 per cent and its three-year rate to 1.98 per cent.

While not the first bank to raise its two-year fixed rates, Westpac marks the first mover from the big four.

However, the raise to the two- and three-year rates still leaves Westpac cheaper than its stablemates CBA and ANZ.

The lowest two-year rate is now on offer from BCU, where borrowers can still access funds at 1.78 per cent.

RateCity said the upwards lift on two-year rates was being driven by the impending expiry of the term funding facility from the Reserve Bank of Australia at the end of June.

The term funding facility has seen $209bn in lending flood the Australian economy since it was announced in March last year.

RateCity research director Sally Tindall said the two-year rate hikes had come earlier than expected, but were coming off record low levels which had affected profits.

“The fixed rate market is set to look completely different by this time next year,” she said. “Right now, there are still 176 home loan rates under 2 per cent but by mid-2022, there could be none.”

Ms Tindall said Westpac likely made the move due to the pressure on its margins.

“They would have been taking a hit to their profit margin,” she said.