APRA is still concerned about the size of the mortgages consumers are taking on despite the banking regulator's intervention having curtailed housing market risks.
Australian Prudential Regulatory Authority chairman Wayne Byres on Tuesday said limits on investor and interest-only mortgages had brought growth in investor mortgage lending back into line with owner-occupied loans.
But, he said, the size of loans being issued by the big banks remained an issue, with consumers vulnerable if historically low interest rates move upwards.
Mr Byres said there had been only a slight moderation in the proportion of borrowers being granted loans six times larger than their income - a level at which they would spend about half their net income on repayments if interest rates returned to their long-term average of about seven per cent.
Such high leverage, he said, was far higher in Australia compared to comparable markets such as the UK and Ireland.
"Household indebtedness is high: perhaps more importantly, the trajectory is clearly for it to rise further," Mr Byres told the Australian Securitisation Forum in Sydney.
With this in mind, Mr Byres said there was considerable room for banks to tighten lending practices.
"Aided by file reviews conducted by external auditors, we have confirmed there is more to do in this area to improve serviceability measures, particularly in relation to the assessment of living expenses and the identification of a borrower's existing debts," Mr Byres said.
Nonetheless, growth in riskier investor lending had been successfully curtailed - if not reversed, Mr Byres said.
He said interest-only lending had accounted for about 23 per cent of new lending for the three months to September 30, well below APRA's 30 per cent limit, with forecasts for the December quarter suggesting a similar level.