By Wayne Cole

SYDNEY (Reuters) – Australian home lending in August expanded at its fastest annual pace since early 2018 as buyers borrowed ever more to get into a red-hot market, foreshadowing tougher rules from regulators concerned at the mounting risks to financial stability.

On Thursday, the Reserve Bank of Australia (RBA), revealed that home loan outstanding rose by 0.6% between July and August. This brings annual growth to 6.2%. This was the largest annual increase since February 2018, and twice the rate seen one year ago.

A record low mortgage rate has led to a surge in house prices and a rise in borrowing.

CoreLogic property consultants found that the annual price increase reached 18.4% in August. That’s the fastest rate since July 1989. The median property saw an A$1,990 ($1,444) weekly gain.

Policy makers worry that borrowers are increasing their debt loads faster than they are earning, making them more vulnerable to economic declines.

Regulators are waking up to the alarm that lending for investment properties has almost doubled since last year, and annual growth in home loan loans has reached 68%.

The OECD as well as the IMF recommended tightening macroprudential rules in order to reduce market excesses.

On Wednesday, the Australian Prudential Regulation Authority (NYSE:) (APRA) indicated that it will release an information paper about macroprudential policies in the coming months. This put banks in a position of being alerted to the fact that tightening is imminent.

Michelle Bullock from the Reserve Bank of Australia (RBA), head of financial stabilization, suggested recently that there are a number of tools available, including interest rate buffers and serviceability. She also mentioned debt to income ratios and loan to value limits.

According to the central bank, raising interest rates in order to cool down the housing market is not an option. It argued that the target of monetary policies was to slow down the economy and create jobs.

Shane Oliver (OTC:) Capital’s head of economics, says that raising interest rates would be impossible given the uncertainty and weakness in the rest of the economy. “Bailing the economy out to obtain more affordable housing won’t help anyone.”

Although macroprudential strategies had previously worked to stabilize the market, they were only temporary fixes for problems that required longer-term solutions.

This included making it simpler to build new houses and reforming tax laws that encourage speculation in housing. But these policies often have high political hurdles.

($1 = 1.3778 Australian dollars)