Australia's major banks may stop offering discounts on mortgage rates to soften the effect of elevated wholesale funding costs.
By doing this, they hope to relieve the chance of having to pass on higher interest rates in an election year.
Banks are pressed by the government not to elevate lending rates out of cycle with the Reserve Bank, even after the European financial crisis has caused a blowout in funding costs.
ANZ Australian chief executive Phil Chronican, said the banks were already starting to modify mortgage packages, specifically reducing brokerage fees, to ease the present margin squeeze.
Higher wholesale funding costs and the current war for retail deposits have cost ANZ $40 million, according to estimates. The bank has a $140 billion home loan book.
Australia's second largest bank The Westpac Group, which has predicted the 15 basis point margin erosion experienced in the first half of the current year, lost about $120m on its $250bn mortgage book.
In an interview, Mr Chronican said the local banks would likely restructure the "value-based pricing" of mortgages which could include cutting the discounts on the average standard variable rates given to customers.
"If you look at it recently, what you have seen in the market is people rejigging their brokerage commission rates . . . that's the way the market has moved," he said.
Banks are also increasing the valuation based pricing of mortgages.
According to Mr Chronican, "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."
"At the moment, the discounts usually apply to people with a reasonably high income and they have equity in their existing home -- there is a lot of different pricing out there."
At this point, ANZ has the second highest variable rate of 7.41 per cent. Westpac leads at 7.51 per cent, with CBA's and NAB's at 7.36 and 7.24 per cent, respectively.
Reports said Westpac is considering looking at its discount pricing for mortgages to avoid having to implement out higher cycle rates.
Mr Chronican said ANZ and its competitors were ready to suffer the margin squeeze to hold market share.