UPDATE 1-RBNZ requires tightening mortgage rules before deciding on the rate

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SYDNEY, September 3 (Reuters) – The Reserve Bank of New Zealand on Friday said it plans to further cut risky mortgage lending as it cuts further stimulus amid rising inflation and continued rising house prices.

Investors continued to buy real estate, relying on historically low interest rates and cheap access to finance from government spending to stimulate the pandemic.

The Reserve Bank of New Zealand (RBNZ) said on Friday that it is seeking input on its proposal to reduce risky mortgage lending by further reducing the amount of loans it provides to owner-tenants with a high loan-to-value ratio (LVR).

“We propose to limit the amount of loans that banks can provide above LVR from 80% to 10% of all new loans to tenant owners, up from 20% at present,” Deputy Governor Jeff Baskand said in a statement.

“Our analysis shows that house prices are above acceptable levels and the risks of correction in the housing market continue to rise,” he added.

LVR measures how much a bank lends against a mortgaged property compared to the value of that property. Borrowers with LVR over 80% are often considered to be stretching their financial resources.

The bank lifted LVR restrictions on mortgages in April last year to spur lending and boost the pandemic-hit economy, but recovered the restrictions in March after the housing market accelerated quickly.

RBNZ has invited interested parties for consultations until September 17 and plans to implement new LVR settings from October 1.

The central bank also plans to begin consultations in October on the proposed debt-to-income ratio (DTI) cap.

The RBNZ is expected to raise interest rates next month, postponing the increase in August due to New Zealand’s first COVID-19 case in six months.

(Reporting to Renju Jose; letter from Praveen Menon; editing by Leslie Adler and Sam Holmes)

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