A resurgent property and mortgage lending market has analysts warning that the Reserve Bank could clamp down on banks again if it continues to run hot.
Reserve Bank figures show there was $6.536 billion in new residential mortgage lending done in December, a jump of $1.165b on the previous December and $1.44b up on the same month in 2017.
• Six simple strategies to slash your mortgage
• How to pay off the 25-year mortgage faster
• Investing in mortgages grows in popularity
• No relief for first-home buyers as mortgage restrictions stay
Core Logic senior property economist Kelvin Davidson said there had been at least a $500 million increase in mortgage lending for each month in the last four months of 2019 compared with the same months in 2018.
"[It's] the strongest burst of activity we have seen in four years," he said.
Davidson said the rise in the value of lending was driven by both a greater number of loans and higher amounts being lent by the banks.
"There were about 24,000 loans in December 2019, a 10 per cent lift on December 2018. The average loan also grew over the past year from about $242,000 to $269,000."
For first-home buyers, the average new loan size in December 2019 was about $487,000.
Davidson said there had been an increase in lending to low deposit or high loan to value ratio borrowers but the banks remained well below the 20 per cent cap on the percentage of new loans to low deposit borrowers they are allowed up to.
But he said moves by the banks to ease serviceability tests in late August and lower interest rates had stoked the property market.
Davidson pointed to a warning in the Reserve Bank's November Financial Stability report that "there remains the risk that prolonged low interest rates could lead to a
resurgence in higher-risk lending".
"They chose to keep the LVR [loan to value ratio] speed limits unchanged at that time, but statements like that suggest that a continuation of the recent mortgage and housing market upturn (sales and values) could potentially even trigger tighter LVRs at some stage this year."
Davidson said that didn't mean it would happen, and if it did it wouldn't be until later in 2020, but borrowers should keep an eye on it.
Cameron Bagrie, principal at Bagrie Economics, said if the market got too hot then the Reserve Bank could look to tighten the screws.
"The ball is in the property market's court. They can have a little bit of fun but not too much," he said.
Bagrie said cutting the official cash rate last year had helped propel more lending in the second half of the year.
"If the market is excitable for another six months it's not going to be a problem but if it continues into the second half of the year it will be one," he predicted.
He said the Reserve Bank would be keeping a close eye on credit as a share of GDP, house prices relative to income and debt levels - particularly the percentage of those borrowing more than five times their income.
"If we start to see those flash up we enter potentially problematic zones."
From July the Reserve Bank's new capital regime comes in for the banking sector meaning banks will have to start holding more capital or reducing the amount they lend out to high-risk borrowers.
Bagrie said he believed the change would only slow the market down at the margins and expected home lending to remain competitive as that was where banks made most of their return on equity.
But he said business and rural borrowers could see rate rises and tougher borrowing conditions.
He said part of the reason the market had picked up was because the Official Cash Rate was lowered but it was also the belief that rates would stay lower for longer which meant banks were able to relax the serviceability criteria on loans.
"It's just given the market another shot in the arm."