SYDNEY (Reuters) - Australia’s largest lenders have started lowering their mortgage rates in an attempt to attract borrowers amid plummeting credit growth, even as rising wholesale funding costs have forced smaller rivals to increase their rates.

Australia and New Zealand Banking Group ANZ.AX on Thursday reduced the variable mortgage rate by 34 basis points to 3.65 percent, three days after the largest lender, Commonwealth Bank of Australia CBA.AX, lowered some of its fixed mortgage rates by 10 basis points on competition grounds.

“The big four banks have been losing market share and their home loan growth has been below the market, so they are doing this as an attempt to recover some market share,” said Morningstar banking analyst David Ellis.

ANZ’s discount will apply to new customers for loans financing less than 80 percent of a property, the bank said in a statement.

Growth in Australian home loans fell to a four-year low of 5.6 percent in June, as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector.

Australia's big four lenders, which also include Westpac Banking Corp WBC.AX and National Australia Bank NAB.AX, already control about 80 percent of the country's home loan and deposit market, making them some of the most profitable in the world.

But they have been losing market share to smaller competitors who have been growing mortgage books at double-digit rates by offering cheaper rates.

“All the small banks and the regional banks increased their variable home loan rates because of higher funding costs, but short-term market rates have actually been easing in the last few weeks, taking some pressure off the major banks,” Ellis said.

“That’s why we haven’t seen the majors increase their home loan rates,” he added.

Over the past few months, about 16 smaller banks have raised their home loan rates to protect profit margins against a sudden increase in wholesale funding costs.

Even with the increases by those smaller rivals, the four major banks’ lending rates remain higher, according to Moody’s Investors Service.