The Reserve Bank doesn't believe that a rise in interest rates will put undue strain on household finances.
RBA figures released this week show the amount Australians owe on their mortgages has increased by its fastest annual pace for three and half years.
Housing debt rose 6.7 per cent in the 12 months to September, its largest rise since early 2011.
However, RBA assistant governor (financial system) Malcolm Edey told a parliamentary committee inquiry into affordable housing that record low interest rates are helping affordability.
"Despite the fact that the debt levels are high, the interest rate burdens are still quite low at the moment," he said.
"This is a general observation, there may be exceptions, but generally those that are holding the debt are the ones that are best placed to service it."
The RBA's cash rate has been held at 2.5 per cent for just over a year and is not expected to increase until mid 2015.
The central bank believes that rapidly growing investor activity are causing house prices to soar and price new owner occupier buyers out of the market.
AFG, Australia's largest mortgage broker, said 40.3 per cent of the mortgages it processed in September were from investors, a new record.
But loans to first home buyers had dropped.
"Historically, this segment has comprised around 15 per cent of all the loans we process, but in recent months this figure has fallen into single digits," AFG's head of sales and operations Mark Hewitt said.
RBA head of financial stability Luci Ellis told the inquiry it was important for borrowers not to over extend themselves because rising home prices were not a certainty.
"An increase in housing market activity is not surprising given the reductions in interest rates, but it is important that those purchasing property maintain realistic expectation of future price growth," she said.
One encouraging sign home owners won't come under too much financial stress once rates start to rise is the popularity of fixed rate mortgages.
A Mortgage Choice survey has found that fixed rate loans hit a four-month high in September, accounting for a quarter of all loans the lender wrote in August.
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