Reserve Bank moves to restrict lending

The Reserve Bank is considering restricting the amount of money banks can lend for home mortgages, and it has the government's support.

Finance Minister Bill English says the measures might include:

* Restricting high loan-to-value ratio lending in the housing sector

* Making banks hold additional capital on their balance sheets as a buffer during a credit boom

* Making banks hold additional capital against loans in specific sectors if risks emerge in those sectors.

Mr English wants to avoid another boom-bust housing cycle.

"There are some expectations that these tools will be used immediately to dampen the Auckland housing market," he said on Wednesday in a speech to the Auckland Chamber of Commerce.

"Those decisions will be in the hands of the Reserve Bank."

Mr English says the bank's proposals will be explained in a discussion document to be released within weeks.

"The government is considering formalising the use of these tools," he said.

"The Reserve Bank and Treasury will finalise arrangements and I expect to sign a memorandum of understanding with Reserve Bank governor Graeme Wheeler by the middle of this year."

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