The major banks' main domestic rivals are calling for an overhaul of the prudential regulator's caps on property investor and interest-only mortgages, claiming the curbs are stifling competition.

Proposals from the second-tier lenders include clamping down on mortgages only in the hottest property markets such as Melbourne and Sydney, or putting tighter speed limits on the big four than the rest of the industry.

For almost three years, banks have faced a 10 per cent annual growth cap in their housing investor loan portfolios, enforced by the Australian Prudential Regulation Authority (APRA). In March this year, APRA imposed a further restriction, capping interest-only lending at 30 per cent of new loans.

As big banks sell peripheral businesses to zero in on the housing market, regional banks say these "macroprudential" policies are having unhealthy side-effects for competition.