WELLINGTON, Dec 10 (Reuters) - New Zealand's central bank will exempt loans for new residential construction from its recently introduced restrictions on mortgages with high loan-to-value ratios, the Reserve Bank of New Zealand said on Tuesday.
The exemption is aimed to promote homebuilding, the RBNZ said. A shortage of housing stock has drived house prices to record highs, stoking overall inflation pressures and raising the risk of financial instability if prices fall sharply.
'This exemption means that low deposit lending will fall outside the 10 percent speed limit if it is financing the construction of a new house or apartment,' RBNZ Deputy Governor Grant Spencer said in a statement.
'However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks.'
High LVR construction lending comprises around 1 percent of total residential lending, but it finances around 12 percent of residential building activity, Spencer said.
The RBNZ introduced the lending restrictions in October, as it tries to cool the overheating housing market before raising official interest rates, which many in the market expect will happen in early 2014.
(Reporting by Naomi Tajitsu; Editing by Philip Barbara) Keywords: NEWZEALAND ECONOMY/LVR
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