APRA's restrictions on interest-only loans may be showing some improvements, but it will eventually lead to household suffering from stressed spending power.

The house price growth in Australia has decelerated down to an annual rate of 5.5% in the year through November, and senior economists at ANZ Bank attribute this to APRA's tighter restrictions.

Senior economists Daniel Gradwell and Joanne Masters told Business Insider Australia that this moderation was primarily driven by regulatory changes.

“APRA’s tightening on investor borrowing and interest-only loans has resulted in higher interest rates for those borrowers, and lowered demand for housing," they said.

Also Read: Melbourne’s dwelling price growth could hit 12% next year

With the restrictions unlikely to be lifted soon, the two economists believe that the slowdown in the housing market will persist through the beginning of 2018.

“Weaker auction results point toward further slowing as we move into 2018. Our forecast that the RBA will increase interest rates next year will also work to lower price growth," the two noted, projecting that the Reserve Bank will lift rates twice next year.

Despite these troubling signs, Gradwell and Masters do not forecast the housing slowdown to worsen, especially if the central bank leaves interest rates unchanged.

“If the RBA doesn’t tighten then prices will likely slow less than we forecast. Importantly, there is still nothing to suggest to us that prices are going to enter widespread declines," the economists said.

The pair explained that it would only come to worst-case scenario should the interest rates rise faster and higher than expected.

"While repayments have been manageable in this low-interest rate environment, households will be sensitive to interest rate increases. We estimate a 2% rise in interest rates would see mortgage affordability blow out to the worst levels on record,” Gradwell and Masters said, “But it’s hard to envisage 2% of rate hikes coming through with inflation and wages growth so soft.”