National Australia Bank's head of retail banking, Gavin Slater, said the fundamentals were ''as good as they get''. ''We don't believe we have a housing bubble, but our outlook is that increasing house prices will be more modest than they have been in recent times,'' he said.

Mr Slater was briefing journalists before a presentation to the UBS Australian Financial Services Conference in Sydney.

Westpac's head of retail and business banking, Jason Yetton, said since April and May, applications for new loans from households had slowed, though it came against ''robust'' credit growth overall.

''We have seen some slowdown, if you like, in application volumes. That would suggest that, to some degree, consumer confidence … may well have plateaued a little bit in some key markets,'' Mr Yetton said after his UBS presentation.

While house prices have eased in the past month, for the 12 months to the end of May, they were up 17 per cent in Sydney, 10 per cent in Melbourne and 11 per cent across the five other capital cities, according to RP Data. Mr Slater said these rates would fall to an ''average of 2 per cent to 3 per cent year on year'' over the next few years.

Mr Yetton said demand from investors was ''pretty strong'', while owner-occupier demand was ''robust'', but conditions in the first-home-buyer segment were ''really weak'' because of affordability concerns. Mr Slater and Mr Yetton both said housing credit growth would be between 6 per cent and 7 per cent.

A cooling of house price growth would increase the Reserve Bank's capacity to keep interest rates at a record low. While Mr Slater said ''it is inevitable that interest rates will go up'', this would not be likely until the second half of 2015.

House price growth would be restrained by two factors: high levels of household debt, and cost-of-living pressures, Mr Slater said.

''Cost-of-living pressures will also act as a natural hedge to house price inflation,'' he said. ''It is well known that in Australia, compared with other OECD countries, household debt as a percentage of gross disposable income is very high and we believe that will act as a natural constraint.''

Household debt as a proportion of disposable income is approaching 180 per cent - record levels that have some analysts concerned that as interest rates rise, the number of bank customers unable to service their loans will increase sharply.

But Mr Slater suggested that since the global financial crisis, the low interest rate environment had resulted in customers deleveraging, and NAB had seen higher balances in mortgage offset accounts and more customers ahead on mortgage repayments.

''If interest rates go up, as inevitably we think they will, households have the capacity to absorb that,'' he said. Rising interest rates were also likely to produce wage inflation, further protecting banks from potential stress on their mortgage books.

In NAB's interim results last month, it reported that housing lending revenue growth had slowed from 6.2 per cent in the second half of 2013 to just 0.4 per cent in the first half of 2014. On Wednesday, it said competition in mortgage lending remained fierce.

Over the past three years, NAB's mortgage book grew at an average of 1.7 times system growth, but in recent months, this has reverted towards the average level of its peers. UBS analyst Jonathan Mott said the slowdown was caused by NAB's decision to move its pricing towards that of its peers, more aggressive competition from the Commonwealth Bank and Westpac, and recent restructuring at NAB.

NAB grabbed market share in housing lending after its ''break-up campaign'' in 2011, which Mr Slater said ''created a lot of momentum and interest and was a big contributor to the growth rates that we saw''.

But he added: ''We have the capability and the capacity to continue to grow.''

smh.com.au