APRA has announced a renewed focus on risky lending practices among banks in light of a booming housing market.
The banking watchdog is cracking down on risky mortgage lending as the property market heats up.
All banks and lenders will be visited by the Australian Prudential Regulation Authority (APRA) in the first three months of 2015, and if risky practices are identified, they face increased scrutiny.
That could mean action, including an increase in the level of capital a bank or lender must hold as a financial buffer, although those measures are not being introduced as yet, APRA chairman Wayne Byres said.
"This is a measured and targeted response to emerging pressures in the housing market," he said.
"These steps represent a dialling up in the intensity of APRA's supervision, proportionate to the current level of risk and targeted at specific higher risk lending practices in individual authorised deposit-taking institutions.
"There are other steps open to APRA, should risks intensify or lending standards weaken and ... we will continue to keep these under active review."
Risk is increasing in the housing market due to a combination of record low interest rates, high household debt and strong competition among lenders for new loans, APRA said.
The regulator's increased monitoring will include a specific focus on higher risk mortgages, and any growth in lending to property investors above 10 per cent.
A strong rise in the proportion of property investors in the housing market - they made up more than half of all new mortgages approved in September - has raised the concerns of the Reserve Bank and other regulators.
UBS economist Scott Haslem said APRA's measures should cool the property market.
"Our initial judgement is that while these aren't particularly aggressive macroprudential rules, they will likely slow the pace of lending to housing, particularly to investors, over coming months, even though we suspect most investors would continue to pass these more stringent tests," he said.
APRA also said it would be looking at loan affordability for new borrowers, ensuring they can afford at least a two per cent interest rate rise.