Proposed bank capital rules could increase mortgage costs for first-home buyers, with a new regulatory framework being considered by the global banking regulators known as Basel. While these changes are not expected to be implemented for several years, they could have a big effect on first-home buyers and others borrowing at higher loan-to-valuation ratios. These moves are part of a clampdown on unsustainable lending practices, with an Australian parliamentary inquiry into housing affordability also scrutinising property investors.

The international Basel committee has proposed new capital limits below which a bank can't go. According to some commentators, this will force banks to put a greater emphasis on loan-to-valuation ratios, in contrast to the current approach that uses a risk weight to measure "probability of default". While the new changes are unlikely to affect most people, "first home buyers may further be locked out of the market" according to JP Morgan analyst Scott Manning.

According to June figures from the Australian Bureau of Statistics (ABS), first-home buyers made up just 15.9 percent of $32 billion in property sales, while investors accounted for more than 40 percent of owner occupied housing commitments. The gap between first-home buyers and investor commitments is widening all the time, at a time when overall wage growth has dropped from four percent just a year ago to a record low of 2.3 percent today.

First-home buyers in Australia have been struggling for a while now, with the Australian Prudential Regulation Authority recently announcing a 10 percent a year speed limit in order to slow down investment-led property growth. The regulator's cap recently changed from a "guideline" to a "hard limit", representing the first quantitative restriction on lending since the 1970s. Along with insisting on a 10 percent deposit, some banks are also using higher minimum interest rates to assess whether borrowers would cope if interest rates rose.

While the new capital rules proposed by Basel are also designed to lower risk, according to ANZ Banking Group deputy chief executive Graham Hodges, they will counteract moves being made in Australia to protect first-home buyers. "We are working within the new regulatory framework to adjust lending requirements, especially for investment loans in a market that's moving quickly... Looking further ahead, the committee needs to be aware that proposals under consideration by the international Basel committee could lead to further significant changes to bank capital requirements applying to housing."

"This could have the effect of increasing the cost of finance, particularly for those customers borrowing at higher loan-to-valuation ratios." said Mr Hodges, adding "Over time, this will likely disadvantage those buyers, namely some first-home buyers, with smaller housing deposits." Finding the right balance between lowering risk and protecting first-home buyers will be a key consideration in Australia over the next few years. While specific moves will continue to target property investors, the wider regulatory environment may continue to challenge first-home buyers.