Westpac is slugging home loan customers with their first interest rate hike in three years, with the other major banks likely to follow suit.
On the same day Westpac announced an $8 billion annual profit and increased dividends for shareholders, Australia's second biggest bank revealed it is raising its variable mortgage rates by 0.20 percentage points.
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Owner occupiers with a $300,000 loan will fork out an extra $46 a month after their standard variable rate rises to 5.68 per cent on November 20.
The rate hike will be the first for Westpac's owner occupier mortgage customers since the bank imposed a 0.10 percentage point rise back in February 2012.
Westpac is also again increasing rates for property investors.
It joined its rivals earlier this year in lifting investor rates after a push by the banking regulator for banks to hold more capital to insulate them against possible losses.
The latest rate hikes could see Westpac rake in about $580 million a year.
Westpac says the money it reaps will help pay for a $3.5 billion share issue it is launching to meet the new regulatory requirements imposed by the Australian Prudential Regulation Authority.
Analysts agree that Commonwealth Bank, ANZ and NAB are now likely to follow suit and ask customers to wear some of the costs from APRA's order.
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Fat Prophets chief executive Angus Geddes said Westpac's rise, while hugely unpopular, would ultimately protect consumers by preventing them from borrowing too much.
"Far better a bit of bad medicine now than to leave the property bubble unchecked and watch it inflate further," Mr Geddes said.
"We could only imagine what's going to happen in a few years time when interest rates start moving up."
With the price of a house in Sydney having surged about 50 per cent since the Reserve Bank started cutting rates in 2011, that could be defaults and repossessions as borrowers become unable to meet increased payments.
"If you want to look at the big, big picture and stand back, the world's had a falling interest rate environment mostly since the 1990s," Mr Geddes said.
"One day that trend is going to reverse."
Commonwealth Bank says it is yet to decide on whether to follow Westpac, while NAB chief executive Andrew Thorburn told a business lunch in Sydney that "you react to the market and review on an ongoing basis".
ANZ has refused to comment.
"This is a difficult decision and one that is not taken lightly," Westpac consumer bank chief executive George Frazis said.
"It does impact customers, even in an environment where interest rates remain near historic lows."
Economists said moves by the other banks, which account for 80 per cent of mortgages, would increase the likelihood of a cut to RBA's cash rate.
But mortgage holders shouldn't hold their breath.
"Further rate relief from the central bank may also not be passed on in full by lenders," said John Kolenda, managing director of mortgage broker 1300HomeLoan.
Westpac's hike could bring in $1.59 million in interest each day, according to financial product comparison service Mozo.
