Higher interest rate testing for Westpac investor borrowers

Westpac will apply tougher tests to new property investor borrowers in response to Australian Prudential Regulation Authority's (APRA) efforts to prevent the housing market from overheating.

It will test how borrowers would cope if interest rates rose to 7.1% when assessing how they would cope with higher interest rates.

Previously Westpac's test involved assessing how investor borrowers would cope if mortgage interest rates rose to 6.8%, up from about 5%.

"We had been using a buffer in that case of 180 basis points, we've lifted that to 210 basis points," Westpac chief executive Brian Hartzer was reported as saying in Fairfax Media.

The policy changes are a response to APRA's warning to banks in December, that they would be forced to run larger capital buffers unless they slow investor credit growth below 10% a year. 

"APRA's been in discussions with the whole industry about this," Hartzer said.

"We're all on the same page here. Nobody wants to fuel a speculative credit boom."

Westpac investor lending is growing at 11.5% annually, it said.