Australia’s major banks are projected to bolster their earnings by approximately $400 million annually, analysts predict, after the Commonwealth Bank of Australia (CBA) followed its rivals and hiked variable mortgage rates for property investors.

CBA announced yesterday it was increasing variable rates for investment home loans by 0.07 of a percentage point to 5.56%, effective this Friday. The Sydney-headquartered multinational bank has also raised its interest rates on line-of-credit loans by 0.15 percentage points to 5.78%.

According to Matt Comyn, CBA’s retail banking chief, the rate hikes were necessary as the cost of funding mortgages was rising. All the major banks have now hiked their rates on investment property loans this month without a cue from the Reserve Bank.  

None has increased the rates paid by owner-occupiers except for Westpac, which has increased rates on all interest-only variable loans. Last week, Brisbane-headquartered Suncorp decided to lift interest rates on investor property loans by 0.15%. Fellow Brisbane-based lender Bank of Queensland (BOQ) confirmed on Tuesday it had not moved rates and would inform the market if planned to do so.

Analysts at Morgan Stanley said they believed the regional banks would continue to follow in the majors’ footsteps. They estimated that a 0.1% rise in rates on investor property loans would add an average 1.5% to profits for the smaller lenders. “We think BOQ should also reprice its residential home loans to help alleviate the downside risk to margins,” they said.

The analysts highlighted the fact that Bank of Queensland was more leveraged to investor property loans than most other banks, with investor lending accounting for 42% of its home loans.

Several smaller lenders have hit owner-occupiers with rake hikes, including ING Direct, UBank, and ME Bank.