their customers who were looking to obtain investor and interest-only mortgage products to other products, such as principal and interest loans, which were not targeted by the restrictions. This meant that the major lenders were earning a higher interest income while not losing any of its customers. Accordingly, the restrictions had a noteworthy anti-competitive effect.
“For example, when financial institutions cut interest-only lending, large banks increased their principal and interest lending, while midsized banks did not,” the authors of the RBA report said. “In addition, the policies had some effect on competition among the 28 banks we analyse, though the impact was short-lived.”
Nevertheless, these lending restrictions were removed in 2018 after property prices in Sydney and Melbourne declines and investors withdrew from the market.
