WELLINGTON, July 7 (Xinhua) -- New Zealand's central bank is considering a further squeeze on mortgage lending, with a renewed warning about the risks to financial stability as the country's housing crisis deepens.
Tighter loan-to-value ratios for investors and limits on debt-to-income ratios could be introduced by the end of the year as part of a package of measures to dampen investor demand and accelerate housing supply, Reserve Bank of New Zealand (RBNZ) deputy governor Grant Spencer said Thursday.
Increased housing demand, especially in the biggest city of Auckland, which is home to a third of the population, had been driven by record net immigration, low mortgage interest rates and increasing investor participation, Spencer said in a published speech in Wellington.
"House prices are increasing at 13 percent per annum nationally, and at 15 to 20 percent in Auckland and close-by regions. Evidence from housing cycles in several advanced economies suggests that the longer this continues, the more likely there will be a severe correction," said Spencer.
"Our concern is that a severe housing correction would pose real risks for financial system stability and the broader economy. The banks are heavily exposed to housing with mortgages making up around 55 percent of total assets. Household debt, at 163 percent of household income, is at a record level."
Loan-to-value ratios introduced in 2013 had helped to strengthen bank balance sheets against potential losses and slow the rise in prices, but house values had been surging back since last year.
"A dominant feature of the housing resurgence has been an increase in investor activity, which increases the risk inherent in the current housing cycle," said Spencer.
Loan-to-value ratios were currently set at 80 percent for most mortgage borrowers and at 70 percent for investors in Auckland.
"The Reserve Bank is considering tightening loan-to-value ratios further to counter the growing influence of investor demand in Auckland and other regions, and to further bolster bank balance sheets against fallout from a housing market downturn. Such a measure could potentially be introduced by the end of the year," he said.
The RBNZ was also investigating limits on debt-to-income ratios, which would restrict the amount house buyers could borrow according to their income, but these would be a new instrument that would have to be agreed by the Minister of Finance.
