‘Greed factor’ controlling banks: FBAA

Mr White said that moving the rate up soon would help stabilise the economy, but he warned that the RBA should pay attention to the potential impact on fixed rates if they do so.

“If that’s the way it’s going to go, [if the RBA increases rates] as has been suggested, it should probably start earlier so borrowers can prepare themselves when considering what loans are best suited to them.

“Fixed rates need to be factored into the equation to ensure that increases do not negatively impact family budgets and future family needs,” he said.

Mr White pointed to the “greed factor” at play with lenders, arguing that “margin creep” practices over the past few years had led to this “potential position,” of market instability.

The FBAA executive director said the Australian economy could be improved by placing interest rates at the 6.0 to 6.5 per cent mark, explaining: “As it is, a vast amount of lending is based at a level two per cent above the prevailing borrowing rate for serviceability of a loan and that will help to ease any future rate increases from causing hardship.”

The official cash rate has not increased since November 2010, more than six years ago, when it climbed to 4.75 per cent. In June, however, ex-RBA member John Edwards claimed the central bank could hike rates eight times in two years, bringing the official interest rate to 3.5 per cent.

[Related: Broker calls for crackdown on ‘out of control’ rate hikes]