The Reserve Bank is carefully monitoring lending standards as investors add heat to the property market, joining home buyers with a fear of missing out.
Property prices are surging in all markets and rising demand for credit is also a concern, as Australia already has high levels of household debt.
“We’re watching very carefully the trends in household debt,” RBA governor Philip Lowe told economists and journalists during a conference call on Tuesday.
“What neither APRA (the Australian Prudential Regulation Authority) nor the Reserve Bank want to see is credit growing too quickly relative to people’s incomes.”
He said a widening gap could prompt more aggressive actions, including increasing the buffer banks have to add on to the interest rate when figuring out a suitable loan amount for a household.
Loan to value and debt to income restrictions were also being “worked through”.
The RBA is also looking very closely at lending standards.
“If we saw a deterioration in those lending standards then both APRA and the Reserve Bank would be looking for actions, we did a number of years ago,” Dr Lowe said.
“Ultimately it’s a matter for APRA.”
AMP Capital chief economist Shane Oliver expects the acceleration in housing finance to new record highs, particularly for investors, to prompt APRA to tighten lending standards within months.