They're clamping down on investors, but major banks are trying to lure lower-risk owner occupiers of residential property. Banks are offering mortgage brokers a new range of incentives to appeal to residential home buyers.

Westpac Group's Bank of Melbourne and St Georges Bank offer refunds on lenders' mortgage insurance, $2000 cash back for refinancing and fixed-rate decreases on owner-occupier home loans by up to 0.3 percent. In a letter to brokers, a Bank of Melbourne spokesman said, "We remain focused on helping owner-occupiers."

Borrowing conditions are becoming increasingly competitive as banks clamp down on investment lending. The higher rates and tougher conditions of the major banks will force smaller property developers and investors to alternative lenders.

"The investment lending landscape is rapidly changing," Chris Foster-Ramsay, managing director of Capital Home Loans, told The Australian Financial Review. "The banks are capping loan-to-value ratios to 80 per cent, increasing interest rates for investment lending and/or interest-only loans by up to 25 basis points [and some are] completely pulling out of the investment lending market." Foster-Ramsay said borrowers who make additional principal and interest repayments over and above the minimum required by the bank and can present a history to their lender will benefit by potentially being able to negotiate better discounts, essentially because they are lower risk.