Demand for mortgages in Australia should remain strong even as house price growth moderates, according to the National Australia Bank.
NAB's head of personal banking Gavin Slater said house price growth is likely to settle for now at roughly 2 per cent to 3 per cent a year on average.
Mr Slater said housing credit growth is sustainable at about 5 per cent to 7 per cent into the future, though he didn't specify how far that forecast extends, and added that the country isn't facing a housing "bubble," as the high level of household debt to disposable income would constrain spending.
Home values across Australia's capital cities rose by 10.7 per cent in the year to May 31, according to RP Data.
The lender will continue to fight for market share against rivals that also have benefited from record-low interest rates and an improved funding environment, he said.
"The fundamentals are as good as they get," he told reporters at a Sydney conference.
The competition among banks to sell mortgages has pressured margins, but Mr Slater said this has been offset by favorable funding for the banks. Low interest rates have helped keep more borrowers ahead on their payments, he said.
"If interest rates gradually go up, as inevitably we think they will, households have the capacity to absorb that," he said, adding that wage inflation likely will accompany rising interest rates, which will help offset pressure on borrowers.
NAB expects rates to remain steady before beginning to rise late next year.
The banking regulator late last month warned the country's lenders against loosening mortgage standards as record-low interest rates buoy home prices and heighten competition.
The Australian Prudential Regulation Authority released a draft guide to mortgage lending in light of what it determines to be increasing evidence of higher-risk lending.
A series of eight rate cuts by the central bank since November 2011 has helped fuel demand for home loans, driving revenue for banks and offsetting weak business lending as the broader economy transitions from mining-led growth.
The big four banks, which together control roughly 90 per cent of the residential mortgage market, have already shown signs that rising competition to lend is pinching profitability.
A recent report by accounting firm PwC found that net interest margins across the four shrank to an average 2.08 per cent from 2.16 per cent a year ago, and is nearing a financial-crisis low of 2.05 per cent.
"Our ambition is to grow our market share in mortgages," Mr Slater said.
The bank also is working to reverse a decline in personal loans and credit cards, and aims to further increase its focus on insurance sales, he said.
The bank today rebranded its Homeside mortgage-brokerage business under the NAB flag and made changes to its commission structure, moves Mr Slater said would help with the lender's aim to grab more market share.