New moves to strengthen the financial system are likely to increase home loan interest rates, Reserve Bank governor Glenn Stevens says.
New capital requirements for the big banks will force them to hold billions of dollars in extra capital against their mortgage books from July 1, 2016.
The measures, announced by Australian Prudential Regulation Authority (APRA) this week, will increase the average risk weighting for home loans from around 16 per cent to at least 25 per cent.
“I would imagine it will result in some rise in mortgage rates from the major banks – it’s supposed to,” Mr Stevens said.
“The whole point of it was to change the competitive landscape between the majors and the others.”
The changes are a response to recommendations from the government’s Financial System Inquiry to redress a perceived competitive disadvantage between major lenders and the industry’s smaller lenders.
The move will apply to the big four banks – ANZ, Commonwealth, National Australia Bank and Westpac – as well as Macquarie Group.
Smaller banks already have a risk weighting of 35 per cent and have argued the status quo amounted to a competitive advantage for the major lenders.