Banks have confirmed that they will increase mortgage rates by more than the official Reserve Bank rises over the coming months.
The Sunday Telegraph has reported that The Big Four Banks claim that they will be forced to lift interest rates beyond the official RBA cash rate because they are facing higher costs of raising money in the wholesale markets.
The National Australia Bank has prepared documents that have shown that the costs of short-term funds are due to increase by 0.10 and 0.20 per cent over the next six months if passed on in full, that will add up to an additional $40 a month to a typical $300,000 mortgage on top of the RBA rises.
A spokesperson for the NAB stated that even if the cash rate remained unchanged, it would still be under pressure to increase its mortgage rates. He further added that the average costs of their funds were rising and that the forecasts have suggested that it will continue to rise well into 2010.
Peter Hanlon Westpac's retail and business banking group executive pointed out that borrowers should not pay too much attention to the RBA's cash rate when contemplating their mortgage, as any mortgage interest rate rise is not based on what the RBA does but on how the banks funding cost are going.
The same price pressures affect all of the Big Four Banks. Due to the higher costs, ANZ has already tried to recoup costs by putting up fees on its main transaction account, and they were the only bank to increase their fixed rate loans in addition to their variable mortgages.
CEO of Commonwealth Bank Ralph Norris also refused to rule out topping up the RBA's increases with hikes of their own.
The reason for the cost of funds increasing is because the banks do not have enough money to lend homeowners and they need to borrow funds from international money markets to satisfy demand.
The banks are having to repay tranches of cheap cash acquired before the global financial crisis and replace it with capital borrowed at today's higher rates.
Mark Bouris founder of Wizard and head of financial services company Yellow Brick Road has suggested that information about bank's funding costs should be made public so that borrowers can make informed decisions about fixing rates or staying variable.
While as yet none of the banks have stated that they will raise rates on their own, the message is clear: the banks will not continue to absorb the higher costs.
Treasure Wayne Swan has repeatedly called on lenders to pass on only what the RBA adds to the official cash rate especially during the time of economic recovery.