The Australian Prudential Regulation Authority (APRA) is “seeing increasing evidence of lending with higher risk characteristics and it does not want this trend to continue,” Chairman John Laker said in a statement.

The Reserve Bank of Australia (RBA), which has held its cash rate at 2.5% since August 2013, has signalled that the housing upswing was needed to spur residential construction. The RBA has eschewed measures to curb booming prices, in contrast with New Zealand, which has introduced limits on low-deposit mortgage lending.

“The RBA needs house prices to keep rising because of the lift they provide to other areas including consumption and construction,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. She added: “Cooling prices now risks derailing the still fragile recovery. Evidence that lending standards have eased will force APRA to have more closed-door discussions with banks.”

APRA’s draft guidelines state that banks should apply a buffer over a loan’s interest rate and regularly conduct stress tests with a range of scenarios to ensure their mortgage portfolios can withstand adverse economic conditions and changes to home prices.

Australian house and apartment prices climbed 11.5% in April from a year earlier with Sydney leading gains at 16.7%, according to the RP Data-Rismark home value index.