Westpac's mortgage book grew by six per cent from a year earlier, but the bank expects demand for housing credit to fall as regulatory measures take effect.
Westpac has increased its first-half profit three per cent to $4.02 billion,but says the demand for housing credit that helped lift the performance of its consumer bank is set to slow.
Cash earnings from the consumer bank were up five per cent for the six months to March 31 at $1.511 billion as total loans grew six per cent and deposits by seven per cent.
Domestic mortgages grew two per cent over the first half - and by six per cent from a year earlier - but Australia's second largest lender expects demand for housing credit to fall as regulatory measures take effect.
The bank expects mortgage growth of five per cent in 2018.
"We remain positive about the Australian housing market, although we expect price growth to moderate through 2017," chief executive Brian Hartzer said.
"Housing credit growth is likely to ease a little as demand slows."
The comment echoed that last week from ANZ chief executive Shayne Elliott, who said he was positioning his bank for a period of low credit growth.
Banks have repriced their loan book to make interest-only and investor loans more expensive in order to comply with Australian Prudential Regulation Authority limits on riskier lending.
Mr Hartzer said Westpac's margins should benefit over the rest of the financial year from that repricing late in the first half.
Net interest margin declined 0.4 percentage points over the first half to sit 0.7 percentage points lower than a year earlier due to higher rates for savers and funding costs.
"Net interest margins may rebound a little in 2H17, but the risk to already weak sector revenue trends is heightening given regulatory actions," Citi analyst Craig Williams wrote in a note.
Mr Hartzer said property price growth is expected to moderate in Sydney and Melbourne, with pockets of falls where there has been overbuilding of inner city apartments.
The proportion of delinquent mortgages remained low by historic standards, with 70 per cent of customers ahead on their home loans.
Mortgages overdue by 90 days or more inched up 0.02 percentage points to 0.72 per cent of home loans - up from 0.58 per cent a year earlier.
Chief financial officer Peter King said delinquencies in Western Australia are expected to slow, but had yet to reach a peak amid the fallout from the end of the mining boom.
Mr King called the overall result - which was broadly in line with analyst expectations - a clean one and lauded the strength of Westpac's balance sheet as deposits grew at more than twice the rate of loans.
The institutional bank was another strong performer, with improved contributions from foreign exchange and commodities helping lift its cash earnings 34 per cent from a year earlier to $700 million.
At 1233 AEST, Westpac shares were up 9 cents, or 0.3 per cent, at $33.95.
WESTPAC'S H1 PERFORMANCE
* Cash profit up 3pct to $4.017b
* Net profit up 6pct to $3.907b
* Revenue up 3pct to $10.769b
* Interim dividend flat at 94 cents, fully franked