The Reserve Bank of Australia deputy governor has dismissed concerns that interest rate rises will have a negative impact on the housing market.

Michele Bullock says most households can handle a potential 3 percentage point increase in the cash rate.

This, she says, is because many borrowers are well ahead on their mortgage repayments, have significant savings and good equity in their homes.

Bullock says most borrowers had been assessed under very strict criteria in recent years to ensure they could afford any interest rate rises.

She says the current cash rate of 1.35% must go a “fair bit higher” for the economy to reach a balanced level, while RBA Governor Philip Lowe says that balanced or neutral rate is probably “at least” 2.5%.

Their comments come as Commonwealth Bank of Australia economist Gareth Aird and Coolabah Capital head Christopher Joye expressed concerns that higher rates will cause house price falls and lead to a reduction in household wealth. But Bullock disagrees.