Macroprudential policy introduced in 2017 to put a cap on the amount of interest-only mortgage lending had the effect of lessening competition and led to “synchronised” rate increases, the ACCC has found.

In March 2017 the Australian Prudential Regulation Authority introduced a rule that limited interest-only mortgage lending by ADIs to 30 per cent of new residential mortgage lending. The restriction was in place until January 2019.

APRA’s objective was to contribute the financial system stability by limiting the amount of higher risk mortgage lending.

However, the interim report of the ACCC’s home loan price inquiry argues that the regulatory measure also provided the banks with an opportunity to increase interest-only rates, at a significant cost to borrowers.

The ACCC found that the average interest paid by investors with interest-only loans rose sharply from March to September 2017.

“We found that that the interest-only benchmark lessened price competition for interest-only loans by providing an opportunity for the big banks and other lenders to synchronise their increases to interest rates on these loans for both new and existing customers, even though the interest-only benchmark only applied to new interest-only lending,” the ACCC said.