If you’re in the market for a home mortgage you’re likely to get a better deal from the small banks, according to research from Moodys Investors Services.

Moodys has found that small and medium-sized banks have better deals on offer than the big four which hold the lion’s share of the mortgage market.

As this chart shows, the big four have average headline mortgage rates around 4.45 per cent, while the medium-sized banks offer 4.2 per cent and the minnows in the market are a shade under 4 per cent.

The smaller banks have better mortgage deals, says Moodys .

Australian homebuyers have got used to rock-bottom interest rates with the Reserve Bank leaving its benchmark cash rate on hold at 1.5 per cent in July for the 23rd month on the trot.

But there have been stirrings in the money market, and it’s getting harder for the banks to raise the funds they need to lend out.

As a result the smaller banks have been quietly pushing up rates over 2018. On Monday Bendigo and Adelaide Bank and Teachers Mutual Bank raised mortgage rates, bringing to 16 the number of smaller institutions that have done so in 2018.

It’s not panic stations yet, as the average rise for owner-occupier loans was 10 basis points (0.10 per cent) with slightly larger rises for investors. Those rises have not yet pushed smaller bank rates up to the levels of the big four, but the majors themselves are under pressure.

In the view of the experts, the only thing standing between borrowers and mortgage rate rises is the pressure of the financial services royal commission. That is making the big banks scared to do anything that worsens the reputational damage and pain they are currently suffering.

“The moves [in rates] have not come from the major banks, but mainly second-tier banks and the non-bank sector. This group is under less pressure during the Royal Commission,” said Steve Mickenbecker, finance expert with Canstar.

But by the end of the year, the royal commission will be over, while rate pressure will continue. Nicki Hutley, partner with Deloitte Access Economics, said: “We have seen a rising cost of funds for the banks with US bond rates moving [up], and it’s more difficult to raise capital.”

The market is tipping the RBA won’t push up its rates for 18 months or more, but Ms Hutley expects the big banks to move “six to 12 months before that”.

Canstar’s Steve Mickenbecker agrees.

“Lenders are coming under pressure from the increased cost of wholesale funding [money they borrow from other banks]. Ultimately this has to be passed on to home loan borrowers.”  

Anyone concerned about the effects on their budget of rate rises in the future might look at locking in some good deals before the banks or the RBA move. Canstar research shows that owner-occupiers can get money at 4 per cent or below for up to three years, while investors can get loans at 4.5 per cent or below.

Moodys analyst Tanya Tang said that while there had been some movement in fixed-rate loan costs in recent times it was not yet possible to determine a trend. “Some have gone up while others moved down.”

When rates eventually rise in what is now a weakening property market the pain of lower prices will be felt more in oversupplied apartment markets like Melbourne and Brisbane.

“The main weakness will be in the investment sector, particularly one-bedroom apartments as opposed to two or three bedrooms,” said Angie Zigomanis, property expert with BIS Oxford Economics.