BEN Bendigo And Adelaide Bank Limited

National Australia Bank Ltd. (NAB) and Westpac Banking Corp. (WBK) on Friday became the last two of Australia's big four banks to hit homeowners by raising rates on mortgages beyond the country's central bank, adding to stress on consumers already struggling with surging inflation and a recent rise in the country's unemployment rate.

Australia's second and fourth largest lenders to home buyers join Commonwealth Bank of Australia (CBA.AU) and Australia & New Zealand Banking Group Ltd. (ANZ) by hiking their standard variable home loan interest rates. Westpac increased its rate by 35 basis points to 7.86%, while NAB raised its lending rates by 43 basis points to 7.67%. Commonwealth's rate is 7.81% and ANZ's rate is 7.80%.

Westpac, which last week announced an 84% rise in net profit, is the country's second largest home lender with a mortgage book of about A$250 billion (US$249.82 billion). The moves by the country's four big banks follow the Reserve Bank of Australia's decision last week to raise its cash rate by 25 basis points to 4.75% and threatens to have a broad economic impact given consumer spending makes up roughly two-thirds of Australia's economy.

"This is around A$1000 (a year) on a A$300,000 home loan and it's exactly what Australian homeowners didn't want in the run up to Christmas. It's exactly what Australian small businesses didn't want in the lead up to the festive season," said Shadow Treasurer Joe Hockey, a vocal critic of the country's big four banks.

Coupled together, the increases add even more pressure on the government to rein in banks on concerns that Australia's economy is overheating on China's insatiable demand for the country's iron ore and coal, pushing the cost of living higher. In the past week, government officials have increasingly called into question the tactics of the country's big banks, with Treasurer Wayne Swan promising a banking reform package aimed at taking more mortgages off of the big four's books and even threatening punitive measures.

"The government will unveil further reforms...to ensure competition in this market," Australia's Finance Minister Penny Wong said at a doorstop in Sydney. "There isn't any justification for any major bank putting in place an interest rate rise above the official interest rate."

Banks have countered by saying the higher lending rates were needed because the average cost the banks pay to fund its lending to customers, both from overseas and through deposits, has been rising and is expected to continue to rise for the foreseeable future.

ANZ's rate increase adds about A$90 a month to payments on the average A$300,000 mortgage, according to a Dow Jones Newswires calculation, with Westpac's moving adding about A$80. Combined, the country's big four banks hold roughly 90% of the country's mortgages on their books, compared with nearly 60% four years ago as a collapse in securitization markets have left smaller lenders weak.

Smaller lenders use securitization markets as their primary source of funding.

In addition to raising rates, NAB joined ANZ by saying it will abolish early exit fees on new and existing home loans, something the government has already promised would be a part of its reforms.

But Australian real estate experts say the lowered exit fees do little to temper the affect of rising rates, with cost of living concerns further compounded by data on Thursday showing the country's unemployment rate rose to 5.4% from 5.1% last month.

About 90% of Australian home owners have variable loans.

Sam White, deputy chairman of Australia's largest mortgage broker, Ray White, said it's not just the country's ongoing property price boom that will be hit by the interest rate raises, but also the cost of living.

"Most people were surprised when the RBA moved and then the compounding affect of the banks has been more than just a double-whammy for Australian families," said White.

White noted homeowners are already changing mortgage originators in the wake of Commonwealth Bank's move. His firm arranges about A$600 million worth of home loans a month with smaller firms such as Suncorp-Metway Ltd. (SUN.AU) and Bendigo and Adelaide Bank Ltd. (BEN.AU) now seeing an uptick in business. After large banks regularly had about a 90% share of the loans Ray White originated since the global financial crisis, that figure has recently dipped to about 60%.

In addition to helping smaller lenders through securitization markets, the government has also said it hopes foreign banks, including Citigroup Inc. (C) and ING Groep NV (ING), will step up efforts in Australia's mortgage market.

"Foreign investment is welcome and if there were further participants who wanted to work in the Australian market, we would welcome that," said Treasurer Swan from the G-20 meeting in Seoul.

-By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com

(David Fickling contributed to this report)

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