Westpac warns of home loan rate rises

Westpac boss Gail Kelly has warned that home loan rates will have to go up if banks are to meet their high funding costs.

Commenting after the Reserve Bank's surprise decision to keep the official cash rate on hold last week, Ms Kelly suggested banks are under pressure to make out-of-cycle rate rises because of funding costs brought about by the global financial crisis.

"We can look into our costs of funding and we can look into our profile of the costs over the next 18 months and we can see that … those costs of money for the next 18 months are going up," she said at a business lunch in Sydney.

Independent bank rate rises may prompt more Australians to compare home loans and switch provider. Ms Kelly's comments come after ANZ chief executive Mike Smith last week warned that "something has to give" if the banks are to maintain their profit margins.

Meanwhile, new Australian Bureau of Statistics data has revealed that first-home buyers accounted for just 15.5 per cent of housing finance commitments in August – the smallest proportion since 2004.

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