From Friday (31 March), new customers of AMP Bank's owner-occupied principal and interest (P&I) variable rate loans will be subject to 3.92 per cent per annum rate for loans of $750,000 and above (an increase of 7 basis points).
Existing customers will see their rates rise by the same amount on 3 April.
Also effective from 3 April, variable interest rates for interest-only loans for existing customers will increase by 15 basis points for owner-occupied loans and by 28 basis points for investment loans.
AMP Bank is encouraging customers with interest-only loans to switch to principal and interest repayments where appropriate.
It has said that it will waive the switch fee for customers doing so until 30 June 2017.
Sally Bruce, group executive of AMP Bank commented, “We are managing our portfolio in a very active market but are committed to providing competitive rates to our customers to help them achieve their property goals.
“We also want to encourage customers to move to principal and interest repayments where it’s appropriate, as there is a great opportunity to access lower interest rates and repay your loan faster.
“Our decisions on rates are not taken lightly and reflect wholesale funding costs, the need to maintain a balanced portfolio and the market environment.”
The move follows on from similar rate hikes by several lenders, including all four of the major banks.
According to the latest volume of JP Morgan's Australian Mortgage Industry Report, new capital requirements under Basel 4 could see property investors hit by rake hikes of up to 3 per cent.
Speaking in Sydney earlier this month, JP Morgan analyst Scott Manning said, "We have seen ongoing repricing of the back book and also some change in discounting behaviour. But one of the things that has also come through is the divergence in repricing behaviour.
“The mortgage repricing against the SVR product is around 30 basis points. But investor mortgages and, in some cases, interest-only loans have been twice that rate at 60 basis points.”
With risk weights for investor loans set to increase significantly, JP Morgan expects ongoing significant dispersion in pricing for mortgage products to continue.
“You could be looking at pricing responses here anywhere between 1.5 per cent to 3 per cent, which is quite meaningful when you consider that mortgage rates at the moment are around 4.5 per cent,” Mr Manning said.
Increasing investor appetite has led some analysts, such as Morningstar's David Ellis, to suggest that the prudential regulator could soon introduce additional macroprudential measures.
In a research report on Commonwealth Bank of Australia (CBA) earlier this month, Mr Ellis said, “Increasing concerns of an overheating housing market are likely to prompt the Australian Prudential Regulation Authority, or APRA, to act to slow the rate of growth of residential investor home loans.
“Likely action, known as macroprudential controls, include the reduction in the current 10 per cent annual growth limit on residential lending to something around 5 to 7 per cent.”
Morningstar also warned that APRA could raise the minimum serviceability buffer “to 3 per cent from 2 per cent” and lift the risk-weighted capital floor for new residential investor borrowers holding multiple properties to 75-100 per cent.
[Related: Banks move on interest rates out of cycle]