WELLINGTON May 14 A strong New Zealand housing market, rising rural sector debt, and a sharp slowdown in China are among the major risks to the country's financial system, but tighter lending rules for banks are helping to reduce the risks and will need to stay in place for some time, the central bank said on Wednesday.
The Reserve Bank of New Zealand (RBNZ) said house prices are overvalued in some areas, which along with increasing demand, lack of supply and low interest rates, have led to households becoming more indebted and more vulnerable.
"The restriction of high-LVR mortgages appears to be having the desired effect of moderating house price pressures and reducing the risk of a severe market correction," RBNZ deputy governor Grant Spencer said in the bank's six-monthly financial stability report.
He said the restrictions would stay in place at least until late this year to ensure the housing market did not get a renewed boost from strong immigration.
The report reiterated comments made last week in speeches by Spencer and the Governor Graeme Wheeler.
The report also renewed warnings in previous reports about the risks from a slowdown in China, the country's biggest export market, the impact of a sharp fall in prices on some highly-indebted dairy farmers, and New Zealand high external debt levels.
However, it also said the financial system was in its strongest condition since the global financial crisis and the risks had eased since the previous report.
The full report is available at www.rbnz.govt.nz