Australia's financial regulators are closely watching developments in the housing sector where a record number of mortgages are being granted as house prices race to their fastest pace since 2003.
The Council of Financial Regulators - comprising the Reserve Bank, Treasury, the Australian Prudential Regulation Authority and the Australian Securities and Investment Commission - said it places a high emphasis on lending standards remaining sound.
This is particularly the case in an environment of rising housing prices and low interest rates.
"It will continue to closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase," the council said in a statement on Wednesday.
The council's quarterly meeting last Friday noted Australia's recovery from the pandemic has been stronger than earlier expected.
It expects the commencement of Australia's COVID-19 vaccine program will have a positive effect on confidence and economic activity.
"Members also discussed how the winding down of some temporary support programs would affect the finances of households and businesses over coming months, recognising that many had strengthened financial buffers over the past year," the statement said.
"Financial institutions and regulators will need to remain vigilant here."
On business lending, the council noted while lending has been stable in recent months and is now around the level seen before the pandemic, it had been subdued last year.
"There are some signs that demand is increasing with the improvement in the economic outlook and it is important that borrowers continue to have access to finance on reasonable terms," it says.
However, members expect there will be a pick-up in business insolvencies this year from the very low levels experienced in 2020 when temporary insolvency relief measures were in place.
