Australia's big banks insist they can't afford to pass on the Reserve Bank's interest rate cut, but angry mortgage holders are increasingly likely to respond by switching lenders.

An Ernst and Young report found that 66 per cent of people think there are better deals available than their present loans.

However, if lenders wanted to take advantage of people's desire to switch, they had to simplify what are currently complicated mortgage products.

Since the Reserve Bank cut the cash rate by 25 basis points to 3.25 per cent last Tuesday, Westpac, Commonwealth Bank and National Australia Bank cut their variable home loan rates by less than that, citing high deposit costs. ANZ will review its lending rates on Friday.


Only four out of 13 lenders that have so far responded have passed on the rate in full, according to financial comparison website RateCity.

A Westpac mortgage holder with a A$300,000 ($373,000) mortgage will save A$35.97 a month after it reduced its rate to 6.97 per cent.

ING Direct passed on the full 0.25 of a percentage point rate reduction, saving its customers with the same size home loan A$47.89 a month.

St George followed the lead of the major banks yesterday, lowering its standard variable home loan rate by 17 basis points to 6.69 per cent - a A$33.94 saving - from October 15.

The bank's retail banking general manager Andy Fell said the bank's cost of funding loans was not solely reliant on the RBA's cash rate, citing the high cost of wholesale funding and the consistently high interest rates it pays for deposits.

The credibility of that excuse has been questioned, with the Reserve Bank itself saying recently that wholesale funding markets were cheaper than during the recent euro area debt crisis.

The respected Australian Economic Record also released figures last week showing Australian Banks had on average passed on 116 per cent of each rate rise and only 84 per cent of each cut.