The banking regulator has removed the cap it placed on booming lending to property investors three years ago, and now expects banks to introduce their own lending restrictions, as concerns about risky practices persist.

The Australian Prudential Regulatory Authority (APRA) on Thursday said lending standards had improved since the 10 per cent cap on growth in new lending to investors was introduced in late-2014, and it is prepared to remove the cap for lenders that can illustrate stronger standards.

APRA chairman Wayne Byres said the investor lending cap will be removed on July 1 for lenders that have been operating below the benchmark for six months, and can confirm their lending meets the regulator's guidance on serviceability.

"Lending growth has moderated, standards have been lifted and oversight has improved," he said in a statement.

"However, the environment remains one of heightened risk and there are still some practices that need to be further strengthened."

The regulator now expects banks and other lenders to develop their own limits on the proportion of lending at very high debt-to-income levels, where debt is greater than six times a borrower's income, and limits on maximum debt-to-income levels for individual borrowers.

APRA said these limits should take into account the total borrowings of an applicant, rather than just the loan being applied for.

JP Morgan economist Ben Jarman said APRA's renewed focus on loan serviceability was not surprising.

"This end-game has been quite clear since APRA began more forcefully requiring banks to share loan-level data this year," Mr Jarman said.

APRA's removal of the investor lending cap is not an easing of credit conditions, as the new restrictions on debt-to-income levels are even tougher, he said.

"Slower credit growth, along with limited capacity for further falls in the saving rate, will be a significant headwind for consumption in coming years," Mr Jarman said.