New mortgage lending fell 31 per cent in March, compared to March 2021, according to the RBNZ. While this was a big fall, new mortgage lending for the month was still well above 2020 and 2019 levels.
Meanwhile, the country's median house price fell to $875,000 in April - down 5 per cent from a peak of $920,143 in November, but still up 9 per cent from April 2021, according to the Real Estate Institute of New Zealand.
"Financial stability risks from a sharp downturn in the housing market are limited given high bank capitalisation, but pockets of vulnerability, particularly among recent borrowers, may exist," the IMF said.
"More broadly, in case of a sharp downturn, potentially reinforced by a faster rise in interest rates, there could be a significant impact on consumption through wealth and confidence effects."
LVR restrictions are currently tight by historic standards.
They require at least 90 per cent of a bank's new mortgage lending to owner-occupiers to go to borrowers with deposits of at least 20 per cent, and at least 95 per cent of a bank's new mortgage lending to investors to go to borrowers with deposits of at least 40 per cent.
The RBNZ tightened LVR restrictions a couple of times last year, after a period of very high mortgage lending, which coincided with the RBNZ completely removing restrictions in response to Covid-19.
This reined in higher-risk, or "high-LVR" lending.
RBNZ deputy governor Christian Hawkesby, in a speech last month, said LVR restrictions were a "permanent device", and would remain in place, although perhaps at a different level to the status quo, even if the RBNZ introduces new debt serviceability rules.
The RBNZ is working to have a framework for debt-to-income restrictions in place this year, so restrictions can be introduced by mid-2023 if required.
Hawkesby said the RBNZ should aspire to publish projections of its macroprudential settings (LVR and debt-to-income restrictions), like it publishes projections for where it sees the Official Cash Rate going.
