Sydney, Melbourne housing key risk to Australia's banking system: Moody's

Global credit rating agency Moody's on Tuesday said the Sydney and Melbourne housing markets are key risks facing Australia's banking system.

CoreLogic-RP released data on Monday showing house prices had increased 11.1 percent in the 12 months to July.

Sydney recorded its fastest pace in 13 years, increasing 18.4 percent.

Core-Logic said property investors made up more than 50 percent of all buyers in the market, with more than 60 percent in New South Wales alone.

"We see the strong appreciation in housing prices, particularly in Sydney and Melbourne, as a key and rising tail risk for the Australian banking system," Moody's vice president and senior credit officer Ilya Serov told Australian Business Spectator on Tuesday.

However the rating agency said it would maintain a stable outlook for Australia's banking system following recent regulations imposed on the country's lenders from the Australian Prudential Regulation Authority (APRA) to ensure lending standards remain prudent.

The decision by the APRA caused Australian banks to restrict property investor lending and hike interest rates on investor loans, in a move to hold the higher ratios of capital required for their loan books.