Bankwest's new rates target owner occupier, principal and interest, variable home loans.

For example, an owner occupier with a deposit of 20 per cent or more is being offered a headline rate of 3.85 per cent, or cut of 18 basis points, for principal and interest loans of more than $200,000.

It is also targeting the first time buyers' market with a new rate of 3.88 per cent, or reduction of 13 basis points, for a two-year fixed-rate for borrowers 10 per cent deposit, including lenders' mortgage insurance.

In addition, it is offering $1500 cashback for some principal and interest purchase, refinance and construction home loans.

The new loans exclude interest-only borrowers, despite regulators easing control on their use.

Borrowers with interest-only loans totalling about $300 billion are coming up for renewal over the next two years.

About 900,000 loans – or about one in six mortgages based on the nation's $1.7 trillion mortgage loan book – will need to be extended with their existing lenders, switched to higher principal-and-interest repayments or transferred to a new lender.

Bankwest and CBA have also started the new year by withdrawing reverse mortgages, the last of the major lenders to pull out of the $3.1 billion sector amid rising costs and tougher regulation.


It will withdraw the product for new borrowers but continue for existing.

Westpac Group, the nation's second largest lender, and Macquarie Bank, withdrew from the market about two years ago.

A reverse mortgage borrower can take the funds from the equity in their house as a lump sum, regular income stream, cash reserve, or a combination of all three.

CBA and Bankwest's decision to quit new lending means reverse mortgages are now only being offered by smaller lenders, such as Heartlands Seniors' Finance, IMB Bank and P & N Bank.

The federal government is expected to enter the market with a low-cost reverse mortgage scheme that will provide an alternative to the private sector.