Westpac will allow property investors to take out interest-only loans with smaller deposits than it previously demanded, as the country’s biggest lender to landlords seeks to lift its mortgage growth.

In the latest move by a bank to target the recovering property investor market, Westpac is raising the maximum loan-to-valuation ratio (LVR) for interest-only loans to property investors from 80% to 90%.

Westpac-owned subsidiaries including St George and Bank of Melbourne have advised mortgage brokers of the new policy, and the change will also apply to Westpac-branded loans. New interest-only loans to owner-occupiers will remain subject to an LVR cap of 80%.

The bank’s general manager of home ownership, Will Ranken, says financing property investors was a key part its lending strategy. “We believe this change will provide a competitive proposition for investors looking to purchase their next property,” Ranken says.

The loosening in credit policy comes as property markets in the major cities have in recent months.

In the previous housing boom, interest-only lending surged, reaching almost 40% of all outstanding housing credit in 2015 and sparking regulatory intervention.

Amid concerns about lending standards being eroded, the Australian Prudential Regulation Authority (APRA) took the rare step of capping the proportion of new interest-only lending in early 2017, prompting banks to slam on the brakes by raising interest rates and toughening their credit policies.

However, APRA said it would remove this restriction last year as house prices fell in the biggest cities – and banks have been unwinding some of the curbs that were put in place, with ANZ earlier this year also raising LVR limits for property investors with interest-only loans.

Banks have also this year cut their interest rates for interest-only customers by more than rates on other types of mortgages.