Recent market developments have made the housing market more attractive for property investors. In July, investor lending grew at its fastest pace since September 2016, according to the latest figures from the Australian Bureau of Statistics.

Lending to investors, excluding refinancing, grew by 4.7% to $4.6bn in July. Refinancing accounted for $2.5bn of the overall lending commitments by investors.

"After withdrawing from the market for several years, investors have reacted positively to the federal election result, RBA interest rate cuts, and APRA easing serviceability guidelines," Maree Kilroy, an economist at BIS Oxford Economics, said.

Overall, lending to households grew by 3.9% to $32.23bn. The rise in mortgage lending came along with the overall improvement in housing-market sentiment, said CoreLogic head of research Cameron Kusher.

"Since July 2019, there has been an acceleration in the rate of growth in Sydney and Melbourne, with national dwelling values also rising in August for the first time since late 2017," he said, "While that won't necessarily all translate into new mortgages, it does show that interest in the housing market is rising."

Also read: Where are property prices growing Australia-wide?

With the auction market still going steady, Kusher said demand for mortgages would likely continue to increase over the coming months.

However, some market watchers raised concerns about the stronger-than-expected growth in home financing.

ANZ economists Adelaide Timbrell and Felicity Emmet said the sharp increase in mortgage lending would not bode well for many Australians, given that household debt is currently at record-high levels.

"The RBA is unlikely to be impressed by these numbers. It would not want a repeat of the housing boom that we had prior to 2017, given already high levels of household debt," Timbrell and Emmer said in a noted. "If this sort of growth in housing finance persists, we expect the regulators would begin to consider macro-prudential controls sooner rather than later."

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