Lenders face rate hike pressure

THE major banks are under intense political pressure to put consumers first and stop raising rates on home loans and credit cards.

House /File

Lenders face rate hike pressure

THE major banks are under intense political pressure to stop increasing interest rates on home loans and credit cards, after a rush of rises to protect their multi-billion-dollar profits.

The Commonwealth Bank became the latest major lender to raise rates this week, increasing its fixed-rate mortgages by 30 basis points.

The majority of the nation's banks have raised their rates on products such as personal loans, credit cards and fixed-rate home loans by more than the Reserve Bank's 25 basis-point increase to 6.75 per cent in November.

The banks have been hit by higher borrowing costs in international finance markets following the sub-prime mortgage crisis in the US.

But Opposition Treasury spokesman Malcolm Turnbull, a former investment banker, said the banks needed to manage the market conditions so as not to punish Australian homeowners.

The Reserve Bank appears poised to raise interest rates again in February, to 7 per cent, which would push the standard variable mortgage rate to about 9 per cent.

"We would always encourage the banks to be very careful before raising rates in response to what we would hope will turn out to be a short-term increase in their borrowing costs,'' Mr Turnbull said.

"The banks have got to form the view as to whether these are short-term moves or part of a long-term readjustment of the price that lenders are going to demand. The banks have to manage their business and take into account changes in costs ... but it's very important that they practice measured restraint in a volatile financial environment.''

Mr Turnbull said the previous government was successful in ensuring lending rates stayed under control. ANZ and Suncorp raised their fixed rates 10 days after the November 24 election.

Wayne Swan said he was keen for the banks to absorb the higher funding costs, rather than push the repayments on Australian mortgages even higher.

"Many families are under significant financial pressure, particularly at this time of the year,'' a spokesman for the Treasurer said.

"And we would urge banks and other financial institutions to be very mindful of that.''

The rates on some credit cards are now 20 per cent, meaning the repayments on the Christmas-fuelled spending spree become considerably more expensive.

The Labor Government said during the election it would keep the pressure on banks not to hike their rates unnecessarily.

Brendan Nelson said the onus was now on the Government to ensure households were not battered further by the banks.

"I implore lenders to take into account the impact on household budgets in making any decisions,'' the Opposition Leader said.

Bendigo Bank, the owner of Adelaide Bank, among the first to increase rates, said yesterday its growing deposit base from customers should help to stop further rises.

A spokesman for consumer body Choice, Christopher Zinn, said the financial burden on households would increase, with Australians racking up record levels of housing and credit card debt.

"The banks have got to justify increasing rates when they do have such significant domestic deposit bases,'' he said.