Housing crash unlikely: RBA

A repeat of a US-style subprime crisis is unlikely to occur in Australia, according to the Reserve Bank of Australia's analysis of the housing sector.

In an address to the Fourth Annual Housing Congress yesterday, the RBA's head of Economic Analysis department, Anthony Richards, quelled concerns that low mortgage rates in Australia could lead to the same problems experienced in the US.

"So the question arises whether a period of low interest rates in Australia (combined with the boost in grants to first homebuyers) could lead to an expansion of lending to riskier borrowers who will only be able to afford their mortgages as long as interest rates remain low. I think there are good reasons to think this is not a major risk."

Richards maintained that Australian lending standards were stricter than those in the US prior to the earlier boom - a fact supported looking at the proportion of non-performing loans on bank balance sheets in the two countries.

He also said lenders that might have been more likely to write risky loans have scaled back activity in the last 18 months, evidenced by ever-shrinking low-doc and no-doc lending.

"Most lending is now staying on balance sheet, and a greater share is being done by banks, which have tended to reduce their maximum loan-to-value ratios. Our discussions with banks indicate that they are indeed testing the ability of borrowers to continue servicing their loans if interest rates were to rise significantly."

Nonetheless, Richards urged borrowers to ensure they will be able to continue servicing loans when mortgage rates return to normal levels.