"Recent buyers are borrowing more relative to their income, and may be vulnerable to higher mortgage rates or a fall in house prices," Reserve Bank of New Zealand (RBNZ) made the comments in its six-monthly financial stability report released on Wednesday.
Meanwhile, New Zealand's house prices hit new record highs in the last several months in a row despite the pandemic, while low interest rates boosted demand for housing and credit. As the housing demand kept high, the supply touched low. In some regions, inventory levels were at lowest point ever.
This year the RBNZ has reintroduced its Loan-to-Value Ratio (LVR) restrictions, and there has been some upward creep in mortgage rates.
"While LVR restrictions have been the main tool we have used to address housing risks, we will soon consult on the merits of implementing debt servicing restrictions to lean against these risks," the report said.
The RBNZ acknowledged that it intend to increase the minimum core funding ratio (CFR) requirement to its previous level of 75 percent on 1 January 2022, subject to no significant worsening in economic conditions.
The RBNZ Governor Adrian Orr was cautiously optimistic about the prospects for post-pandemic economic recovery, noting that "global economic activity continues to expand, albeit with significant challenges in large part due to the ongoing COVID-19 virus."
"With the risk of global inflation heightened, already stretched asset prices are facing headwinds from rising global interest rates," he added.
The bank reassured that New Zealand's economic activity was back above pre-pandemic levels. However, it warned that the more recent Delta outbreak is creating stresses for some industries and regions - particularly in Auckland.
"A transition towards living with COVID-19 in the community as a managed, endemic disease is changing consumer behaviour, affecting the viability of some businesses, while supply chain bottlenecks and inflation are adding to stresses in some sectors," it said.
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