In data released by CoreLogic, Canberra's housing market recorded a 2 per cent jump on the same time last year, the second best performance out of all capital cities, with just Hobart recording a higher rise at 9.7 per cent. Every other capital recorded a drop in house prices, with Sydney recording a 6.1 per cent drop and Melbourne 3.4 per cent drop on the same time last year.

The report said the figures mark the 12 month anniversary of Australia's housing correction, with prices peaking in September last year and values dropping 2.7 per cent since then.

While house prices in Canberra experienced 3.1 per cent increase in the last year, unit prices were down 1.4 per cent on a year ago. The median value of a house in Canberra in September was $686,582 and for a unit the median was $443,791.

CoreLogic head of research Tim Lawless said the housing market had slowed in line with heightened regulation across the finance sector, and the report warns that house hunters could have their borrowing power slashed by close to a third if banks are forced to tighten their lending standards as a result of the royal commission.

Analysis of CoreLogic figures by Capital Economics warned the full effect of tighter credit conditions and higher mortgage rates has yet to be felt.

"Our view is that house prices may eventually fall by 12 per cent, which would be the longest and deepest housing downturn in at least three decades," said chief economist Paul Dales.

Meanwhile market analysts say the banking royal commission's interim report has raised the likelihood of a borrower credit crunch, with commissioner Kenneth Hayne suggesting banks had to do more to check customers could afford the home loans they were taking out.

The report found that banks had assumed that borrowers' household spending was equal to the benchmark index, the Household Expenditure Measure (or the HEM), in as many as three out of four home loans examined by the banking watchdog in 2017.

But three quarters of households spend more on things like alcohol, clothing and childcare than the HEM accounts for, Commissioner Hayne said, meaning its use did not constitute any verification of a customers' living expenses.

"On the contrary, much more often than not it will mask the fact that no sufficient inquiry has been made about the borrower’s financial position," he said.

Commissioner Hayne raised questions about whether banks' current spending verification processes met their responsible lending obligations to ensure a loan it not "unsuitable".

"Lending was treated as not unsuitable if the customer was unlikely to default. But that is not what the responsible lending provisions required," he said.

UBS analyst Jonathan Mott said the commissioner's final report was likely to recommend that banks conduct full income and expense verification to assess a borrower's financial position, with a recent increase to the types of spending they assess appearing to not satisfy the commissioner.

"We estimate that a move to full expense verification is likely to reduce maximum borrowing capacity by [about] 30 per cent," Mr Mott said.

The banks' recent tightening of expense assessments had already cut borrowing capacity by 7 to 10 per cent for owner occupiers and by about 20 per cent for property investors.

"Therefore there is likely to be a further substantial tightening in maximum borrowing capacity to come," he said.

Banks have said full checks are too hard to conduct but Commissioner Hayne gave this short shrift in his report, saying it was "not difficult" to look at a customer's income and spending on their bank statements - which are often held by the same bank they are seeking loans from.

With Eryk Bagshaw and Patrick Hatch.