Westpac (ASX:WBC) just made it a bit more expensive to buy a house with higher interest rates

Westpac is the latest bank to increase the interest rate for potential buyers.

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red percentage sign with man looking up which represents high interest rates

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Australia’s second biggest bank, Westpac Banking Corp (ASX: WBC), has become the latest bank to increased fixed interest rates for potential home buyers that are getting a loan with principal and interest repayments.

According to reporting by the Australian Financial Review, Westpac is going to increase its two-year and three-year fixed rate loans by 10 basis points and this will be also implemented with its smaller banks: St George, BankSA, Bank of Melbourne and RAMS.

It isn’t the first big bank to increase the fixed interest rate. The biggest Australian bank, Commonwealth Bank of Australia (ASX: CBA), decided to increase fixed rate last month.

The AFR quoted a spokesman for Westpac who said:

In making this decision, we took into account multiple factors including the need to manage pricing changes in a sustainable way.   

We are in a record low interest rate environment and continue to offer competitive home loan rates for customers.

Depending on the direction of the cost of Westpac’s funding, this interest rate rise might mean Westpac can earn a slightly higher net interest margin (NIM) on the loans it gives out.

What has been happening for Westpac recently?

Over the last six months the Westpac share price has risen by over 32%.

Just over a month ago, the big four ASX bank reported its FY21 half-year result which showed a sizeable profit improvement year on year. Excluding notable items, Westpac’s cash earnings went up 60% to $3.82 billion.

Statutory net profit was up 189% to $3.44 billion. Westpac’s cash earnings went up 256% to $2.54 billion. However, the net interest margin (NIM) dropped 4 basis points year on year to 2.09%. But compared to the second half of FY20, the NIM went up 6 six basis points.

Westpac’s balance sheet improved, the common equity tier 1 (CET1) capital ratio improved by 153 basis points to 12.34%.

The CEO of Westpac, Peter King, gave some comments on the outlook for the bank and economy:

It has been a promising start to the year with increased cash earnings, growth in mortgages and continued balance sheet strength.

First half earnings were considerably higher than the prior corresponding period, mainly due to an impairment benefit reflecting improved asset quality and a better economic outlook. Notable items were also lower.

Importantly, we are beginning to see the benefits of our new operating model through improved performance.

Our Australian mortgage book increased $2.6 billion over the past six months, with good growth in owner occupier loans partly offset by lower investor lending. Owner occupier loans increased 3 per cent, with first home buyers making up 13 percent of new loans.

Australia and New Zealand have managed the pandemic well and we are proud to have helped so many customers return to full repayments. Stressed exposures to total committed exposures ended the half at 1.60 per cent, compared to 1.91 per cent at 30 September 2020.

While the economic outlook is more positive, there is still some uncertainty and we have remained prudent in our impairment provisioning.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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