The banking regulator has expressed concern over the heavy exposure of Australia's financial sector to the housing market and warned it may take further steps to ensure lenders do not add to risks with poorly considered new mortgages.

Australian Prudential Regulation Authority chairman Wayne Byres says the nation’s banking system has “a notable concentration in housing” by any standard, and needs particular attention to ensure it remains stable. APRA has already told lenders to limit growth in higher risk interest-only loans to 30 per cent of new mortgages,…