CANBERRA, AAP – The Reserve Bank says the strength of the housing market is good for the economy, but the subsequent strong demand for mortgages may leave both households and banks vulnerable.

RBA assistant governor responsible for financial stability Michele Bullock has told an online conference that housing credit is currently running at an annualised rate of around seven per cent and could peak at around 11 per cent early next year.

“Low interest rates are clearly an important factor, making it easier for households to service their debt,” Ms Bullock said in her address to Bloomberg.

“Also important has been the government support for housing construction, including the HomeBuilder scheme.”

While this has supported the purchase of new dwellings or housing construction, there are signs credit growth is increasingly being driven by purchases of existing dwellings, in which turnover is currently quite high.

“Sustained strong growth in credit in excess of income growth may result in vulnerabilities building in bank and household balance sheets,” she said.

Around 60 per cent of Australian banks’ lending is in housing, which is also common collateral for loans to small and medium businesses.

“Currently in Australia, the evidence suggests that lending standards overall have been maintained in the face of very strong demand for housing,” she said.

“This is in contrast to 2014-2017 when there were signs that lending standards were declining.”

Then, the Australian Prudential Regulation Authority took a number of measures to bolster lending standards and curb growth in lending that was posing a higher risk to financial and economic stability.

“Unlike in 2014 and 2017, the concerns this time are not specific types of lending such as investor or interest only lending,” she said.

“So the tools used at that time are not really appropriate at this time.”

If they were needed, so-called macro-prudential tools should be targeted at the risks arising from highly indebted borrowers.

“Tools that address serviceability of loans and the amount of credit that can be obtained by individual borrowers are more likely to be relevant,” she said.