that such apartments are relatively close substitutes for existing apartments, the prices for apartments shown should be broadly representative of all apartments. 7 the shift from interest - only payments to principal - and - interest payments is another compositional change that may have contributed to a reduction in the average interest rates paid over this period. however, interest rates also declined within the set of interest - only and principal - and - interest loans, for both owner - occupiers and investors. 8 see rba ( 2018 ), household and business finances, financial stability review, october. 9 see rba ( 2018 ), ‘ box b : the impact of lending standards on loan sizes ’, financial stability review, october. 10 bullock m ( 2018 ), “ building financial sector resilience : a decade long transition ”, 10th annual commonwealth bank global markets conference, sydney, 30 october 2018. 11 while, as i note below, the average seasoning of loans in non - banks ’ new rmbs deals has fallen in recent years, the data on non - banks ’ securitised loans remain a less reliable indicator of recent lending activity. 12 atypical rmbs tranche ( or note ) will pay a floating interest rate with principal returned on a ‘ pass - through ’ basis as payments are received ( subject to the payment profile specified in the rmbs deal documentation ). a shortterm tranche is one that is structured to receive sufficient principal payments such that its weighted average life is less than or equal to one year. a ‘ green ’ tranche indicates that a sufficient share of mortgages in the pool involves housing that meets certain energy efficiency or low carbon criteria for residential buildings. 13 see rba ( 2018 ), domestic financial conditions, statement on monetary policy, august for more detail on the effect of higher bbsw rates on banks ’ funding costs. 14 this point was raised in a speech by guy debelle several years ago : debelle g ( 2015 ), ‘ benchmarks ’, speech at the bloomberg summit, sydney, 18 november. 15 for further details, see debelle g ( 2018 ), ‘ interest rate benchmark reform ’, keynote at isdaforum, sydney, 15 may, and alim s and e connolly ( 2018 ), ‘ interest rate benchmarks for the australian dollar ’, rba bulletin, september. 16 / 16 bis central bankers'speeches

is split into a number of individual tranches with different characteristics but equal subordination. 12 / 16 bis central bankers'speeches we have also seen what might be termed greater ‘ specialisation ’ of individual tranches. for instance, in recent years the use of one or more tranches with less common features – such as foreign currency, short term or green features – has increased. 12 this increased specialisation is consistent with issuers addressing the needs of different types of investors. all of these developments point to the evolution of the australian securitisation market over the past few years, with non - bank issuers playing an increasingly important role and non - resident investors taking an increasing share of issuance. benchmark interest rates, rmbs pricing and funding costs the increase in bank bill swap ( bbsw ) rates in early 2018 has led to a modest rise in the funding costs of both banks and non - banks. 13 however, the increase in overall funding costs has been a bit greater for non - bank issuers than for banks. this is because banks have a sizeable proportion of their liabilities – such as retail deposits – that do not reprice in line with bbsw rates. also, the bulk of non - banks ’ loans are funded via rmbs issuance, and the cost of issuance has risen by a bit more than bbsw rates ( graph 12 ). the premium over the bbsw benchmark rate has risen to the level of two years ago. at the margin, these changes mean that 13 / 16 bis central bankers'speeches non - bank issuers are not able to compete as aggressively on price for new borrowers as banks than was the case a year ago. most lenders have passed through modest increases in their funding costs to borrowers over the past few months. despite these increases, competition for new loans remains strong, and interest rates for new loans are still well below outstanding rates. so credit supply is available to good quality borrowers on good terms and there is a strong financial incentive to shop around. interest rate benchmarks for the securitisation market one final point i ’ d like to make on pricing, is that rmbs issuers and investors should be considering the implications of developments in interest rate benchmarks. in light of the issues around benchmarks such as libor ( the london inter - bank offered rate ), substantial efforts have been made to reform these benchmarks to support the smooth functioning of the financial system. bbsw rates