Westpac Banking Group has lifted its variable home loan rates by 30 percentage points, which is more than the rise in official rates this week.
The bank also warned it would make further adjustments to interest rates if conditions in global credit markets don't improve.Westpac's standard variable mortgage rate will rise to 9.27 per cent next Tuesday, March 11, from 8.97 per cent.
The move is larger than the 25 percentage point rise in official interest rates to 7.25 per cent engineered by the Reserve Bank of Australia (RBA) on Tuesday.
Westpac acting group executive of consumer financial services Jeremy Dean said the decision to raise rates by more than the RBA was a difficult one.
"We are extremely mindful of the impact of interest rate increases on our customers,'' he said.
"We know that this rise will stretch many family budgets.
"However, the cost of wholesale funding continues to rise.
"The price over the cash rate that Westpac is paying has more than doubled since the US sub-prime crisis unfolded.''
Banks have been hurt by rising funding costs since defaults in the US sub-prime mortgage market last August resulted in a tightening in global credit markets.
"This means the additional 0.05 per cent change still does not recover the full cost increase Westpac has experienced and we continue to absorb a large proportion of the higher wholesale funding costs,'' Mr Dean said.
Westpac is the second of the major banks to lift variable home loan rates.
National Australia Bank Ltd (NAB) yesterday lifted its rates by 29 percentage points, with the standard variable rate rising to 9.27 per cent, effective today.
NAB also said it may have to lift its rates again, even if the RBA doesn't.
Market analysts have been predicting homeowners will be hit with a "double whammy'', as banks pass on the cash rate rise then add the increased cost of their own borrowings.
