Australian Prudential Regulation Authority chairman Wayne Byres has flagged that interest rates on investor or interest-only home loans may continue to rise as banks try to quell demand for riskier credit, while the prudential regulator's influence on property prices will be limited as shadow banks fill gaps in lending.

In a wide-ranging speech on property markets, Mr Byres also warned buyers that property prices will fall in a full economic cycle. APRA is ready to tighten the screws further on banks if economic conditions warrant it, he said, while history suggests it will be commercial real estate that could present banks with their biggest headaches in a downturn.