SYDNEY (Feb 15): Commonwealth Bank of Australia, the country's biggest mortgage lender, posted a record first-half cash profit on Wednesday, backed by surging investor demand to buy into the country's hot property market.

Annual growth in Australian home prices reached 10.7% in January, with record-low interest rates helping to fuel demand from investors at a time when many first-time home buyers are being priced out of the market.

"There is no doubt that at the moment there are more investors able to afford houses than owner-occupiers," CBA Chief Financial Officer David Craig said in a phone interview with Reuters. "That is where the demand is."

The bank's profit for the six months ended Dec 31 rose 2% to A$4.907 billion (US$3.75 billion), slightly ahead of an estimated A$4.845 billion from three analysts polled by Thomson Reuters I/B/E/S.

CBA shares rose 2% to US$84.89 in morning trade, closing in on last month's all-time high of A$85.65.

The bank has a 25.4% market share in home loans, helping to drive profitability but making it the most vulnerable of Australia's 'Big Four' banks to any downturn in the housing market.

The proportion of investor loans written by the bank has also risen to 37% from 31% a year earlier, raising concerns it is close to breaching a 10% annual cap on investor property loan growth set by regulators in 2014.

CBA has started to turn away some property investors looking to refinance their loans, and the bank said on Wednesday it would hike rates for interest-only investor loans by 12 basis points.

"Our interest only investor loan rate was below all of our competitors and we were finding we were getting very large demand," Craig said. "We are determined to stay below the ... benchmark (of 10% growth)."

GROWTH SLOWDOWN

The bank's net interest margin, a key gauge of profitability, fell 4 basis points to 2.11% due to higher deposit and wholesale funding costs.

The result was still CBA's slowest half-year cash earnings growth rate since the global financial crisis in 2009 and comes as Australian banks struggle with higher funding costs and the need to hold more capital against their mortgage books.

"Overall, the result was slightly stronger than expected driven by higher non-interest income and lower bad debt charges," Regal Funds Management Senior Analyst Omkar Joshi said.

The bank benefited from increasing the share of loans written itself rather than through mortgage brokers, while loan impairment expenses remained low, at 17 basis points of gross loans and acceptances in the six months ended Dec 31, compared with a 19-basis point average for the prior financial year.

It declared a fully franked interim dividend of A$1.99 a share, up 1% from a year ago.

(US$1 = 1.3074 Australian dollars)