JULIA GILLARD and Wayne Swan are telling Australians to dump the big banks as payback for the decision by Westpac and ANZ to sever their links with the Reserve Bank's official cash rate.
The Prime Minister and Treasurer yesterday urged customers to shop around for the best mortgage in the same way that they would for any other product.
"The fact is there are better deals around and if customers are unhappy with their financial institution, I urge them to take the time and think about changing because there are many better deals out there for customers should they wish to change their financial institution," Mr Swan said.
When asked, at a news conference in Brisbane, if the latest rate rises "proved the banks are bastards", Mr Swan said: "It indicates to me that they are out of touch with their customers, that they are treating their customers badly and that is why I say to their customers, let them know what you think."
There are early signs a growing number of people are doing just that, with new figures showing people are increasingly signing mortgages with the smaller banks.
Westpac and ANZ argue they face higher funding costs as a result of increased competition for new deposits. But the move is a game changer for banks and their customers, who are now exposed to higher and more frequent interest rate rises.
The head of campaigns for the consumer group Choice, Matt Levey, said consumers should view rate rises by ANZ and Westpac "as their invitation to shop around". He said "the actions of ANZ and Westpac raise questions about whether there is any genuine competition by the major banks."
The Commonwealth Bank and National Australia Bank are yet to announce if they will follow suit.
A spokesman said NAB was committed to having the "lowest standard variable home loan rate of the major banks" and would watch competitors. The Commonwealth echoed the line that its rates were under review, as did the Bendigo and Adelaide Bank. Only the Bank of Queensland said it would keep its standard variable home loan interest rates steady.
Mr Swan said his reforms of the banking sector were starting to have an effect. Figures from the Australian Prudential Regulatory Authority show the growth rate in new mortgages taken out at smaller banks is twice the rate of growth in new mortgages of the big four.
Last year, the number of new mortgages taken out at smaller banks grew 14.8 per cent.
New mortgages with the big four banks grew 7.8 per cent while the rate of growth at the next four - ING, Suncorp Metway, Bank of Queensland and the Bendigo and Adelaide Bank - grew 8.1 per cent. Treasury estimates the value of the mortgages held by the smaller banks is now $9.7 billion.
Mr Swan said the government's decision to abolish exit fees on mortgages had also given people more power.
In the five months from July, after the government's ban on exit fees, about 320,000 new mortgages were taken out. This is estimated to grow to 1.1 million households by the end of this year and nearly two million by the end of next year. Ms Gillard said it had "never been easier" for customers to change banks if they were unhappy with their product.
The opposition's treasury spokesman, Joe Hockey, ridiculed Mr Swan's attempts to bring the banks to heel and said he expected the Commonwealth and National Australia banks to also raise rates.
"Since 2008, Wayne Swan has warned the banks 53 times not to go outside the movements of the Reserve Bank," he said. "He has been ignored on over 40 occasions.
"Now Wayne Swan's advice to consumers is to simply walk down the road for a better deal. This is no use if down the road does not have a better deal."