Australians are vulnerable to interest rate rises because their housing debt is close to record levels, according to a report which coincided with the central bank’s first official rate increase in 19 months.

The Australian Mortgage Industry Report, produced by JPMorgan and Fujitsu Consulting Australia and released on Tuesday, said interest payments on mortgages will rise to 11 per cent of disposable income, close to the 2008 peak of 12 per cent, if home loan interest rates rise by a “modest” two percentage points.

Mortgage interest payments had fallen to five year lows after the Reserve Bank of Australia (RBA) reduced the overnight cash rate to a 49-year low three per cent in April this year.

But the RBA reversed the direction of interest rates on Tuesday, raising the cash rate by 25 basis points to 3.25 per cent.

Some households had taken advantage of a low interest rate environment to repay debt, but the federal government’s first home owner stimulus meant a whole lot of new loans were signed, keeping outstanding housing debt levels close to the peak of over 130 per cent of disposable income, the mortgage report said.

“Australian households are as geared now as before the financial crisis,” said JP Morgan analyst Scott Manning, one of the authors of the report.

“There’s still some tough times for the Australian economy ahead for households as interest rates inevitably rise.”

The immediate implication for the mortgage industry was that loan growth would stagnate for 12 to 18 months as the boost from the first home buyers grant faded, banks maintained tight lending criteria and construction levels remained low, the report said.

“When we look at the forecast for volume growth going forward, we look at the drivers and the outlook is extremely challenging,” Mr Manning said.

Another implication, which affected the economy and society as a whole, was that housing affordability would diminish from current levels, which are only in line with long term averages because of the low interest rates.

“At the low interest rates that we have, average affordability is roughly where its been long term,” Fujitsu industry director for financial services Martin North said.

“Our house to income ratios are some of the worst globally, which means affordability for people coming into the market place are going to be a significant issue.

“That’s going to have to lead to a discussion about supply side initiatives as well as interest rates.”