Financial regulators have warned banks not to let lending standards slip, underlining the need for borrowers to have “buffers” to prepare for expected increases in interest rates.

The powerful Council of Financial Regulators on Wednesday said a key focus in its latest quarterly meeting was the increasing amount of higher-risk mortgage lending - in particular loans with high debt-to-income multiples.

Figures earlier this month showed there had been continued growth in lending to people borrowing more than six times their income in the December quarter, as home buyers stretched themselves to keep up with soaring prices.

Most analysts think it’s unlikely regulators will place further curbs on the mortgage market, given house prices appear to be slowing, after a lift in fixed rates, and curbs that were placed on the maximum amounts customers could borrow in late 2021.

But the Council, comprised of Australia top finance regulators, on Wednesday indicated it was still keeping a close eye on the housing market.

“Members discussed the actions being taken by banks to manage the risks within their portfolios, and will continue to assess the need for further macroprudential measures,” the Council said, referring to its quarterly meeting last Friday.

“It is important that lending standards are maintained and that borrowers have adequate buffers, especially in an environment in which housing loan interest rates are at historically low levels and are expected to rise over time in line with the economic recovery.“

The Council is made up of the Reserve Bank, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the federal Treasury.

Financial markets are pricing in interest rate hikes from the RBA later this year, and RBA governor Philip Lowe this month said it “would be prudent to plan for an increase.”