Mortgage discounts could be cut to avoid passing on higher interest rate

Banks are under pressure from the government not to increase their mortgage levels above the official cash rate, one publication has noted.

Banks may be set to cut the discounts on mortgages to avoid passing on a higher interest rate to their consumers during an election year.

This is according to the Australian, which reports that the organisations are under pressure from ministers not to increase their levels out of cycle with the Reserve Bank of Australia's (RBA) official cash rate - which currently stands at 4.5 per cent.

Phil Chronican, Australian chief executive at ANZ - which offers a range of credit cards - said the firms have already set about making changes to various packages.

He added: "The banks offer discounts based on the valuation characteristics of a loan. In the future we may see that being used differently by banks as they fine tune their home loans."

In May, the company announced it was increasing the levels on its standard variable rate home loan and a range of its Aussie credit cards by 0.25 per cent.

By Joe Letts