The Reserve Bank of New Zealand's curbs on mortgage lending to low deposit borrowers may be removed by the end of the year.
The bank’s deputy governor Grant Spencer said in a speech on Friday that pressures in the housing market were easing gradually and loan to value restrictions may not be needed next year.
LVR restrictions were introduced in October last year, limiting lending to those with less than a 20% deposit to 10% of new lending.
Spencer said without those restrictions annual house price inflation might be 2.5% higher.
The minutes of the Reserve Bank of Australia’s March meeting show members discussed the experience in other countries where macroprudential tools had been use to slow demand for established housing and their possible application in Australia. It will be another two weeks until the April minutes are released, to see whether the board are continuing to pursue this.
But RBNZ believes the lending restrictions are achieving their purpose, with housing supply higher and house prices cooling.
"The financial system is less vulnerable to an adverse housing shock and banks are now less exposed to potential credit losses as the interest rate cycle turns upwards," Spencer said.
At this stage the earliest date for beginning to remove them is likely to be late in the year, but before restrictions are removed the bank wants to be confident the housing market is responding to interest rate increases and that immigration pressures would not cause a resurgence of house price pressures, he said.
RBNZ recently raised its official cash rate for the second time in two months, lifting rates to 3% as it forges ahead with a policy-tightening cycle to ward off an inflation threat.
BNZ, Westpac New Zealand and ANZ's New Zealand operations have all reported net interest margin pressure in the first half as customers rushed to change from variable to fixed mortgages before the start of a rate-hiking cycle that is predicted to lift mortgage rates from 5.5% to as high as 8% by the end of 2015.
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