The nation's biggest home loan lender, Commonwealth Bank of Australia Ltd has ramped up its benchmark mortgage rate by 0.14 per cent just a week or so after the Reserve Bank of Australia (RBA) decided there was no need to lift official rates higher.

But the Commonwealth's move, which follows similar rate hikes from St George Bank Ltd last week and the smaller BankWest this week, may end up doing the RBA's work for it, especially if the other major banks follow.

The Commonwealth announcement on Friday confirms banking analysts' warnings this week that the big lenders are again facing increasing costs of funding for their own business.

The latest bank hike prompted a flurry of chest-beating in Canberra, with Treasurer Wayne Swan saying that "working families" were already hurting from eight consecutive interest rates rises in just over years and higher petrol prices.

"But I'd remind them that hard-pressed families will reward banks that provide relief when it's possible, not just increases," Mr Swan said.

"Now is the time for families to look for a bank that can best shield them from the increased cost of borrowing flowing from the US sub-prime crisis."

Unfortunately home owners are running out of options as many non-bank mortgage writers are already out of the market. The other big banks - Westpac, ANZ and National Australia Bank - have confirmed their rates are "under review".

Increasing numbers new home buyers have already dumped the property dream for now, at least. This week's housing finance figures that showed home loan approvals had fallen for the fourth straight month.

Finance approvals for owner-occupied housing have now fallen by 25 per cent in the first four months of this year.

The Commonwealth's standard variable rate home loan will increase from 9.44 per cent to 9.58 per cent from July 14 for new and existing customers.

Commonwealth Bank group executive for retail banking services, Ross McEwan, said the bank's own cost of funding was more than 100 basis points above the levels that were being experienced before August 2007 - excluding the increases by the RBA.

"The bank continues to balance the needs of its shareholders and customers by not passing on the full impact of the increased funding costs to borrowers, and as a result has seen the margins on its home loan business decline significantly in the last year," he Mr McEwan said.

Analysts at major brokerages this week noted that banks' wholesale funding costs are again marching upwards after coming down from a peak earlier this year.

JP Morgan analyst Brian Johnson noted ANZ banking Group Ltd's $2 billion debt issuance this week was a mighty 238 basis points over the bank bill swap rate (BBSW).

"Despite the rhetoric increasingly acknowledging the impact of the global credit crunch had further to run, banks were surely thinking that the worst was behind them," Mr Johnson wrote in a note to clients on Thursday.

Mr Johnson said he expected the banks would move quickly to reprice their business book as their corporate customers' facilities fell due.

Analysts at Credit Suisse noted funding costs were again deteriorating and advised their clients to go underweight in the banking sector.

"Currently, however, we estimate the majors are only recouping 50 to 60 per cent of additional funding cost pressures," they said.

"As such, we see the potential for further mortgage repricing across the sector."

Commonwealth's move came a one week after Australia's fifth largest bank, St George, lifted its standard variable interest rate by 20 basis points to 9.67 per cent, as it tries to offset higher funding cost.

Last week, the RBA left official interest rates unchanged at a 12-year high of 7.25 per cent.

Following the July 1 RBA board meeting, bank governor Glenn Stevens noted that conditions in international financial markets remained difficult and credit concerns had resurfaced in the past month.

"The evidence is that the tightening in financial conditions in conjunction with other factors including rising fuel costs is working to restrain demand," Mr Stevens said.