But on three-year fixed rate mortgages, Macquarie cut its pricing by 10 basis points. Tribeca Investment Partners portfolio manager Sean Fenton said while a "pricing blowout" in the cost of funding loans was particularly impacting smaller lenders, the major banks would be closely weighing their options.

Moving parts

"They don't really want to give politicians another stick to come and beat them with," he said.

"They [the big four] would be thinking about it very closely. There are a lot of other moving parts and they may choose to cut deposit rates a little bit ... or they can absorb it."

UBS analyst Jonathan Mott told clients on Monday that the spread between the bank bill swap rate and the overnight index swap was at its highest since the financial crisis.

Tribeca Investment Partners portfolio manager Sean Fenton said the major banks would be closely weighing their options. "They don't really want to give politicians another stick to come and beat them with." Louise Kennerley

"It is possible that the major banks could reprice their mortgage books in the coming months to pass through higher wholesale funding costs to customers," he said.

"However, while the smaller banks and 'shadow' lenders would most likely follow, they would need to reprice substantially more to stabilise their NIMs [net interest margins]."


Non-bank lender Pepper has already alerted mortgage brokers to changes across new mortgages for construction. They came into effect July 6.

The memo pointed to increases that ranged from 20 basis points to 55 basis points depending on the type of mortgage and the quantum of deposit provided by the borrower, known as the loan to value ratio (LVR).

For what Pepper calls its essential construction loan – with an LVR of of between 80 per cent to 85 per cent – the interest rate rises to 4.79 per cent from 4.59 per cent.

Further changes to Pepper's mortgage pricing are also anticipated for its existing home loan book.

Pepper's changes followed on the heels of Bank of Queensland increasing variable home loan rates for interest-only owner occupied and investors by up to 15 basis points.

Owner-occupier and investor lines of credit are being also being increased.

Other headwinds

The string of increases by lenders come, however, as the RBA continues to hold the official cash rate steady at 1.5 per cent.


Mr Mott also cautioned investors that while funding costs were rising, other headwinds such as regulation and reputation damage, were crimping credit growth for the big four banks.

"Over the last three months the major banks' housing credit growth has slowed to 3.7 per cent annualised, not seasonally adjusted," he said.

"This compares to 5 per cent growth for the system as a whole. By comparison the smaller banks and non-banks (excluding the regionals) were growing their books at around 12 per cent annualised over the quarter to May."

Mr Mott added that the differential reflected the lowest relative growth rate since the financial crisis.

Also treading cautiously on risks to the housing market on Monday was Morgan Stanley's Richard Wiles, who warned of a "cash flow and credit crunch" for some consumers.

"Mortgage repayments could consume an additional 15 per cent of disposable income for high debt-to-income customers switching from interest-only to principle and interest," he said. "This places additional strain on households and risks higher non-housing losses."