MORTGAGE holders struggling with the rising cost of living will have to apply individually to their bank to have their repayments reduced, even if the lender passes on an interest rate cut.

No bank has yet followed the lead of National Australia Bank, which yesterday became the first bank to guarantee it will pass on in full the 0.25 percentage point cut in official interest rates expected next month.

But even if they do, rate relief will not be immediate for most borrowers. This is because most Australian mortgage holders choose to make repayments in excess of the minimum required and these repayments do not automatically change when interest rates do.

But amid higher petrol prices and inflation, many families may opt to reduce their repayments for immediate interest rate relief.

Mortgage holders should also not hold their breath waiting for banks to pass back the 0.55 percentage points in rate increases inflicted apart from Reserve Bank moves since January.

The chief executive of NAB's Australian operations, Ahmed Fahour, said yesterday that while an easing in short-term funding costs would enable it to pass on a rate cut next month, long-term funding costs would continue to rise in the coming year, potentially adding another 0.13 percentage points to bank funding costs.

"All Australian banks are reliant on offshore funding and increases in the average cost of long-term funding are likely to be with us for some time," he warned.

Mr Fahour called on the Federal Government to reduce tax on bank deposits to make it more attractive for people to invest their money with banks and reduce the banking system's reliance on expensive offshore funding.

Mr Fahour said 50 per cent of the bank's funds came from deposits, 20 per cent from short-term debt, 20 per cent from debt over longer terms and 10 per cent from shareholder money.