In conjunction with announcing a week-long trading halt to launch a A$3.5 billion share rights issue yesterday, Westpac said interest rates on all its variable home loans - that is, owner occupied and residential investment property loans - will be increased by 20 basis points next month. In defending the move, George Frazis, chief executive of Westpac's consumer bank, said that the amount of capital that needed to be held against mortgages "will increase by over 50 per cent" under APRA's revised rules - that is, from 16 basis points to 25 basis points when the new rules take effect from 1 July 2016. The new rates take effect from 20 November 2015, and will apply only to Westpac branded loans, leaving mortgages from its St George subsidiaries unaffected. Westpac's headline owner occupier home loan variable rate will rise to 5.68 per cent per annum.In its announcement, Westpac added that "new savers will benefit with a 25 basis point increase on four, seven and 12 month term deposit rates, effective from 16 October." One effect of this will be to attract further deposits, thereby improving its capital position, but in reality, the effects on Westpac's overall capital structure are likely to be marginal. One reason for this is that other major banks are expected to follow suit, setting themselves up for an improvement in net interest margins, should the Reserve Bank of Australia decide on a further decrease in the official rate.The out-of-cycle rate rises caught bank-watchers out of step. For instance, Stephen Walters, chief economist for JP Morgan in Australian and New Zealand, wrote:  "Our analysts argued that banks very likely would push through material out-of-cycle mortgage rate increases on investor loans over the next year, on top of the (up to) 29 basis point hike delivered by the major lenders a couple of months ago. We argued that rate hikes for owner occupier lending were possible, but unlikely."If Australia's banking oligopoly theory holds true, the Westpac rate rise will be copied by other Big Four rivals and smaller outfits. And, as mortgage rates creep back up again, Macquarie Group's prediction of a drop in home prices early next year might look far more likely to come true.However, NAB's chief executive Andrew Thorburn, speaking at a business lunch yesterday, was decidedly non-committal. When asked about NAB's response to the Westpac move, Thorburn said his bank was "very comfortable" with its current mortgage rates, which are subject to ongoing review.Thorburn said NAB saw that regulatory changes likely to come out of the Financial System Inquiry were going to require more capital and that was why the bank undertook a capital raising in May.He said the change to the risk weights on home loans for capital purposes have a direct bearing on the cost of capital and it "not unreasonable" to look at the returns from mortgages."But home loan customers are one of our most important segments," he said.