Tougher restrictions on bank lending may be needed if Australian house prices or mortgage debt accelerate again, the International Monetary Fund says.
In a review of the domestic economy, the IMF on Friday identified the housing market and household debt as key risks for the economy, even though it said conditions in the property market had cooled slightly over the past year.
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The IMF said Australia's policy makers should continue to focus on making the economy more resilient to housing and other shocks - and this should include being ready to tighten regulation of the banks if the property boom takes off again.
Authorities should be "vigilant" against risks in the housing market, it said.
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"Financial regulatory authorities would need to stand ready to intensify targeted prudential measures, if lending or house price growth were to re-accelerate, while advancing the implementation of the regulatory reform agenda," the IMF said in a statement.
Banks should also be pushed to further strengthen their capital buffers, which would help them absorb losses in a "more significant housing correction", the IMF said.
Banks already have a 10 per cent speed limit on their annual growth in housing investor loans, and in recent weeks some economists have said this growth cap should be lowered to prevent housing from overheating.
The IMF stressed that tighter restrictions on bank lending should be a "contingency", as tougher credit restrictions could make it harder for mining-heavy areas to recover from the commodity price bust.
Instead, it says the Australian Prudential Regulation Authority should be "ready" to act, and further curbs on interest-only home loans might be one option.
Debate over the need for tougher lending curbs has been triggered by a recent pick-up in bank lending to investors, but ABS figures on Friday showed the value of loan approvals for investors in December fell 1 per cent, after three strong months. Owner-occupied lending increased 1.3 per cent in December, the ABS figures showed.
The Reserve Bank's Statement on Monetary Policy on Friday acknowledged investor lending had picked up "strongly" in recent months, which it said was a response to lower interest rates and loans for off-the-plan purchases being settled.
RBA governor Philip Lowe on Thursday night said the central bank and APRA "continue to work closely together monitoring developments", which could be a sign the authorities will intervene if housing credit growth accelerates.
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