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SYDNEY, March 29 (Reuters) - Recent increases in home loan rates by Australia's major banks should help cool growth in lending to more vulnerable buyers, but banks still face risks from high household debt and an overheated property sector, Fitch Ratings said on Wednesday.
Australia's "Big Four" banks have all raised interest rates on home loans for owner-occupiers and investors over the last two weeks, even though the Reserve Bank of Australia has kept the cash rate on hold at a record-low level.
Surging house prices have raised speculation that the main watchdog, the Australian Prudential Regulation Authority (APRA), is about to clamp down on bank lending to property investors, adding to rules imposed in 2015.
Fitch said the out-of-cycle rate rises by the banks were prompted by the potential action by APRA as well as higher funding costs on the back of likely U.S. interest rate hikes.
Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group and National Australia Bank Ltd all have "stable" AA-minus ratings from Fitch.
The ratings agency said risks remained due to high household debt levels and "unsustainable" housing prices in Sydney and Melbourne, placing pressure on affordability if lending rates increase.
Deutsche Bank analysts on Monday increased their future cash earnings forecasts for the banks by 2 to 3 percent due to the mortgage rate hikes, even though they expected demand for loans from housing investors to decrease as a result. (Reporting by Jamie Freed; Editing by Richard Pullin)