A senior Reserve Bank official says regulators will take action to cool home lending, but that action is "unlikely" to involve loan-to-value limits.

Fronting the Senate Economics Committee, Reserve Bank assistant governor (financial system) Malcolm Edey said "something will be done" to limit risky lending to housing investors.

Near the end of the hearing, Dr Edey said that he expected "at least a preliminary announcement before the end of the year."

In its financial stability review released last week, the Reserve Bank expressed concerns that the housing market was becoming imbalanced due to a preponderance of investors.

It noted that it was in discussions with the banking regulator - the Australian Prudential Regulation Authority (APRA) - about potential new rules to limit more risky investor lending.

Dr Edey told the committee the discussions are ongoing and APRA will have more to say "in due course".

"These are APRA's tools not the Reserve Bank's tools," he added, noting that it is the banking regulator that has the power to make such regulations.

He also observed that APRA had already taken some actions behind the scenes to limit low-deposit lending and other risky practices.

Dr Edey says the tools being considered will be focussed on the investor segment of the market, "but not necessarily limited to that."

Low-deposit loan limits 'unlikely'

However, he also responded to media reports and market commentary that had raised the prospect of limits on high loan-to-value ratio lending, as have been implemented in New Zealand, as one possible tool.

LVR limits are "unlikely to be one of the measures that we would focus on because it's targeted at the wrong segment of the market," Dr Edey told the Senate committee.

The limits on low deposit home loans introduced in New Zealand have attracted criticism for disadvantaging first home buyers, because they tend to have lower savings and therefore need to borrow a greater proportion of the purchase price.

Rather, it looks increasingly likely that the solution that Australian regulators are looking at is increasing the 'risk weighting' of investor loans.

This would mean banks would need to hold more money in reserve to cover potential losses on housing investor loans than they do now, perhaps causing the interest rates on them to rise slightly and/or limiting their availability.

The head of the RBA's financial stability department Dr Luci Ellis somewhat gave the game away that regulators are looking at this with the following answer to a question on whether there would be ways around the potential new rules.

"The risk weights on lending to mums and dads to invest in housing are lower anyway than lending to a trust, so I don't think that would be a feasible - if, hypothetically speaking, you increase capital or required some other sort of restriction on a particular kind of activity in lending to individuals for housing purposes, you'd have to go a long way for that to then be higher than lending to a small business for the exact same purpose," she responded.