Between October and January, the annual growth in lending to property investors jumped from 9 per cent to 27 per cent. Credit:Graham Denholm "It is about whether or not they are adequately provisioned, whether their lending standards are adequate, and if there is an oversupply and falling prices, whether they end up under water or wearing larger losses than they expected because they hadn't anticipated this. "Have households purchased these apartments in the expectation of rising rents and rising prices, and with a glut may not be able to rent them out and may not be able to get the price they paid for them?" Although the Prudential Regulation Authority instructed banks to tighten lending standards for investors in 2014 and succeeding in bringing the growth in investor lending down below 10 per cent, "everyone would be aware that more recently investor housing growth has started to speed up again". In the year to January lending to property investors climbed 27 per cent. Investors borrowed $13.8 billion that month, more than the $13.6 billion that was lent to owner-occupiers. Of the $13.8 billion, only $1.2 billion was for building new homes.

Lending to investors grew 27 per cent in the year to January, well above APRA's 10 per cent benchmark. Credit:Erin Jonasson "We are watching it because investors can be the first ones to get out if things turn down," she said, warning that a rush for the doors could make a slump "much bigger than it would otherwise be". Invited to repeat an assurance by Treasurer Scott Morrison on Monday that rapidly climbing house prices in Sydney and Melbourne were "not the function of any sort of investor credit bubble or anything like this", Ms Bullock declined, saying: "I would not like to speculate on what is a bubble and what is not, personally". "We ... are prepared to do more if needed", says RBA assistant governor Michele Bullock. Credit:Louise Kennerley "The worry is what happened in the United States: a big downturn in housing prices and negative equity. Hopefully what we've done with strengthening the resilience of the households and the banks means they can withstand that sort of thing if it happened."

"But what we saw from the global financial crisis has made us more focused on the fact that just because one institution doesn't look to be doing anything particularly risky, it doesn't mean that if you aggregate it with the others the end result won't look quite risky." We don't want households to find themselves in a situation where they have to emergency sell or whatever because they can't afford it any more. Reserve Bank assistant governor Michele Bullock "We don't want households to find themselves in a situation where they have to emergency sell or whatever because they can't afford it any more." In the past year Sydney prices had climbed 18 per cent and Melbourne prices have risen 13 per cent. "Is there evidence that people are seeing prices rise, and they think prices will always rise?" she said. "If they are, what will happen when prices turn down? Will the slump be much bigger than it would otherwise be?"

Purchases by investors was a much bigger driver of house prices than buying by foreigners. Concern about investor borrowing was likely to keep interest rates higher than they otherwise would be. Loading "The governor has noted that there is a balance between the interest rates that are needed to support the economy and interest rates that might be fuelling borrowing and investing," Ms Bullock said. "These are the issues that are on the mind of the governor and the board". In a note to clients on Monday JP Morgan analysts Ben Jarman and Tom Kennedy said the "only path out" for the Reserve Bank was to tighten controls on lending rather than lift rates at a time when the economy was fragile.