Key Points:

Global credit market turmoil is tightening the squeeze on New Zealand households, with the country's largest bank, ANZ National, raising key mortgage interest rates once again in response to "severe" market conditions.

Fixed mortgage rates for both of the bank's brands rose, with the most popular two-year rate up by 20 basis points to 9.7 per cent and the three-year rate up 25 basis points to 9.55.

History suggests the other major banks are likely to follow suit.

Floating mortgage rates have also been on the rise, with ASB Bank increasing its rate 20 basis points to 10.75 per cent.

Changes in world credit markets since the US "sub-prime" crisis last year have led to a sustained increase in the cost of the funding banks use to meet their lending requirements, ANZ National Bank said yesterday.

"Wholesale rates have increased by 20 basis points in February alone," its statement said. "We have been able to protect customers from the impact of these most recent increases, but this week's changes reflect the severity of the global credit environment of which New Zealand is a part."

Yesterday's increase comes just a few weeks after a similar-sized move by the major banks last month.

Households having to refinance two-year mortgages are facing a 2 per cent increase in interest costs, which would add more than $100 a week to payments on a $350,000 mortgage.

Banks' fixed-mortgage rates are generally priced from the interest rate swaps market where rates have again been on the rise in the last few weeks.

However, the Herald understands the margin above swap rates the banks must pay to secure money from overseas lenders has also risen considerably in the past month.

"That reflects the credit risk of the banks," said Massey University head of banking studies David Tripe.

Early this week, ANZ National chief executive Graham Hodges foreshadowed yesterday's increases, saying that as the international cost of funds continued to rise, that would be reflected in local interest rates both for the household and corporate sectors.

"That will happen irrespective of what the Reserve Bank is doing with the official cash rate."

Mr Hodges said the squeeze on households from previous rate hikes was already showing up in a sharp increase in late loan repayments, particularly since September last year.

Household budgets are already facing significant pressure from food and fuel price rises.

Oil hit US$101 a barrel yesterday, and petrol prices may increase as a result.

Should the NZ dollar fall sharply from its current post-float highs over US81c, as many currency watchers expect, the impact on petrol price increases will be even more severe.

Meanwhile, the higher cost of funds on international markets has likely been a driver of two large capital raisings by both ANZ National and the Bank of New Zealand in recent days.

The BNZ is seeking to raise up to $700 million in its offer of "perpetual shares", which will pay an interest rate of over 10 per cent. ANZ National yesterday announced an offer of similar size and interest rate.

It is believed these two offers will force even more finance companies, which offer similar rates but with a far higher level of risk, out of business.