PHOTO: Assistant governor of the Reserve Bank, Michele Bullock, said there were “pockets” of financial stress among indebted households. Photo: Janie Barrett

The Reserve Bank says there are “pockets” of financial stress among the highly-indebted household sector, and it is closely watching how customers with interest-only loans manage when they are required to start paying back principal over the coming years.

The central bank’s assistant governor for the financial system, Michele Bullock, on Tuesday played down the threat to the banking system from high housing debt, saying the risks to financial stability from mortgage debt were “not particularly acute.”