The Reserve Bank of Australia’s deputy governor, Philip Lowe believes bank mortgage books in Australia have seen their level of risk grow in recent years. 

Speaking during the question and answer segment at a Sydney conference earlier this week, Dr Lowe said rising property prices, household debt and unemployment levels were responsible for the increased risk levels. 

"My subjective assessment would be the level of risk in bank mortgage portfolios has risen over the past couple of years," Dr Lowe said. 

"Household debt is high, property prices are very high, household income growth is slow, the unemployment rate has drifted up - all those things would suggest there has been an increase in the level of risk, particularly as people have bought property for investment purposes.”

Dr Lowe’s comments come after the Australian Prudential Regulation Authority (APRA) has advised banks across the country that lending to investors should not exceed 10%. 

A number of banks have responded to the regulator’s concerns through a range of measures such as imposing increased loan to value ratios or reducing discounts offered to investors and Dr Lowe he believed these measures were having an effect. 

APRA’s actions have been criticised by some as being too reactive to the strong markets in Sydney and Melbourne, but Curtis Lunney from brokering firm Trilogy Investment Property Funding believes it’s a case of the regulator being safe rather than sorry. 

“I think the government’s concerns stem from the idea of bad debt occurs in good times, interest rates have never been this low and when they go back up they don’t want a situation where people have over committed themselves,” Lunney said

“There might be a bit of an over-reaction, but some of that might be a legacy from the GFC, they saw what happened in the US and Europe where rates were low and money was being lent hand over fist and when the rates went back up they were left with properties worth less than the loan.”