The Government needs to make more money available to non-bank lenders if it wishes to ensure there is some half-decent competition in the mortgage lending market. The big four banks are issuing about 90 per cent of all new mortgages, a figure that stood at 60 per cent before the onset of the global financial crisis.

Banks are not benevolent institutions. If they have market clout they will use it to maximise their profits. And, after buying some smaller lending rivals at bargain prices, they are using it.

Witness how they chose not to hand through all of the Reserve Bank's cuts in interest rates. Sure, the cost of funding money internationally is expensive but the banks' profits also remain very healthy.

The big four have just reported full-year profits of more than $15 billion, enhancing their reputation as among the most profitable banks in the world.

The Government needs to increase support beyond the $8 billion already allocated to the small lenders. The big four argue that competition is cut-throat between them. But it took the entry of the first non-bank lender to take advantage of financial deregulation, Aussie Home Loans, in 1992 with cheaper standard variable-rate loans, to see real competition from the big banks. They were forced to cut their margins in response to slipping market share.

With the next move in interest rates to be up, the last thing consumers need is less competition in mortgage lending. The banks will be tempted to help themselves to more than the actual rise in official rates, or perhaps even move before official rates rise. They would not be so ready to do that if consumers had an alternative.

After the Reserve Bank cuts of 4.25 percentage points since September last year as an "emergency" measure to help deal with the global financial crisis, the restoration of rates to normal levels could be quick. Once the Reserve Bank starts raising rates, it will probably not be finished until rates are back to 5 per cent, from 3 per cent now, a 40-year low. The Reserve Bank is worried about house prices, which have risen strongly this year, driven mostly by first-home buyers taking advantage of Government incentives. The Reserve Bank does not want to see a bubble in property prices.

Unemployment is still rising, though it will probably not rise by as much as expected. Underlying inflation remains above its target zone of 2 per cent to 3 per cent but is falling. It looks as if Australia will emerge from the crisis without dipping into recession. Economic growth, though better than most developed countries, is still weak. The Reserve Bank will not want to risk hurting economic growth and will raise rates only to the extent that it takes the heat out of the property markets but does not damage the recovery.

The market is predicting an interest rate rise of 0.5 of a percentage point by the end of this year and a further 1 per centage point rise within the next 12 months. That means a cash rate of 4.5 per cent in a year from now from the current 3 per cent. These market expectations on rates are always fickle, and can change from week-to-week, but those with mortgages need to be prepared for higher rates.

The banks will squeeze their customers to the extent that profits are maximised. Already, the banks have moved their fixed rates on their mortgages well above the expected increase in interest rates. The rise in rates could come even before the Reserve Bank's next meeting, on October 6, if the banks opt to go earlier.