New Zealand central bank tightens lending to house investors

Tighter lending rules for housing investors will come into force from Oct. 1, New Zealand's central bank said Monday, in a move aimed at reining in soaring home prices.

Residential property investors would generally need a 40-percent deposit for a mortgage from next month, while owner-occupiers would generally need a 20-percent deposit, said the Reserve Bank of New Zealand (RBNZ).

The new rules would apply nationwide, replacing current restrictions that differentiated between the biggest city of Auckland - the center of the nation's rippling housing crisis - and the rest of the country, said a statement from the RBNZ.

The current rules require investors to generally have a deposit of 30 percent in Auckland and 20 percent outside Auckland.

The RBNZ announced the rules in July, but delayed their implementation to allow commercial banks time to prepare.

RBNZ governor Graeme Wheeler said at the time that the new restrictions were aimed at mitigating risks to financial stability.

The RBNZ has been hamstrung for months as it struggles to balance its dual roles of maintaining a sound finance sector and keeping inflation - currently at 0.4 percent - to its target range of 1 percent to 3 percent.

The RBNZ has been wary of cutting the official cash rate - currently at 2 percent - for fear of further fueling rampant housing inflation, particularly around Auckland, which is home to a third of the population.

"A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country," Wheeler said at the time.

"A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy." Endit