CANBERRA, AAP – The amount of outstanding home loans in Australia grew by the fastest monthly pace in four years, remaining largely with owner-occupiers.

New figures from the Reserve Bank of Australia showed housing credit grew by 0.6 per cent in May, the largest rise since June 2017.

Annual growth now stands at 4.8 per cent, its highest since 2018.

Owner-occupier loans rose 0.7 per cent in the month to 6.6 per cent, also the highest year rate since 2018.

Growth in loans to housing investors remained relatively modest, rising 0.4 per cent in May to 1.6 per cent.

Australia’s Council of Financial Regulators continues to monitor developments in the housing market at a time of rapidly rising prices.

The council – made up of the RBA, Treasury, Australian Prudential Regulation Authority and the Australian Securities and Investments Commission – agreed at a meeting earlier this month that overall lending standards in Australia remain sound.

However, the banking watchdog, APRA, has written to the nation’s largest banks, warning there are signs of some increased risk-taking as home buyers rush to secure loans in a heated housing market.

Moody’s Analytics, which operates independently from the Moody’s Investors Service credit rating agency, believes APRA is on the verge of intervening in the housing market to cool the spectacular momentum experienced across capital cities.

APRA has previously intervened to curb investor demand for housing.

“Macroprudential tools are particularly useful with sustained low interest rates, because they can target pockets of concern,” Moody’s Analytics senior economist Katrina Ell says.

She estimates that 20 per cent of Australia’s population is under “mortgage stress”, a concern when lending rates are at historical lows.

Mortgage stress is defined as paying 30 per cent of household income in mortgage payments.

“An underlying concern is that when interest rates do eventually rise, highly leveraged households need to be able to continue servicing their loans, even if rate increases are forecast to be gradual,” she says.

The RBA data showed total credit rose by 0.4 per cent in May to 1.9 per cent annually.

Personal and business loans both rose 0.2 per cent in the month.