The banking industry has rejected claims Australia's housing market is in a bubble and says property is more affordable than it has been in five years.

A new report from the Australian Bankers Association, which represents 23 major banks, argues that while low interest rates are lifting prices, property has actually become more affordable.

It also argued that borrowers would be able to service their debt obligations when interest rates started to rise.

“Housing affordability is the best it has been for around five years and those households with the highest debt have the most assets as well as the highest capacity to service that debt,” the Key Truths on Housing in Australia report found.

“Borrowers are well-placed financially to withstand an increase in interest rates or other event that may cause increased financial pressure.”

The Reserve Bank of Australia’s cash rate, currently at a record low of 2.25 per cent, has encouraged more investors to enter the property market and has led to price increases.

This is especially the case in Sydney, where home prices climbed 13.7 per cent in the year to February to a median of $680,000.

The report argued that while Australia’s household debt-to-income ratio had risen in the past few years to around 150 per cent, it remained slightly below its pre-global financial crisis peak.

ABA chief executive Steven Muchenberg said the value of household assets was also much higher than that of household debt.

“The value of household assets is greater than the value of household debt – for every $1 of debt held by Australian households today, they have almost $6 of assets,” he said.

He also said Australian households were, on average, 21 months ahead of their scheduled mortgage repayments.

Meanwhile, the report denied first home buyers were being priced out of the market, pointing to revised Australian Bureau of Statistics figures which show that home loan approvals for first home buyers have been relatively flat since 2011.

By Evan Schwarten