(Adds background and further detail from central bank)
April 26 (Reuters) - The Reserve Bank of New Zealand (RBNZ) said on Wednesday it was considering easing mortgage loan-to-value ratio (LVR) restrictions with effect from June 1 as risks to financial stability had diminished.
LVR restrictions set limits on how much a bank can lend to a home buyer against the value of the house, helping reduce the risk of people defaulting on their mortgages and supporting the stability of financial markets.
Deputy Governor Christian Hawkesby said in a statement that current settings were put in place November 2021 when risks were elevated and these have now reduced to a level where the current restrictions may be unnecessarily reducing efficiency.
New Zealand's median house price has fallen more than 16% since the property market peaked in November 2021 as the central bank has increased interest rates rapidly.
The statement said national house prices are now near a level that is more consistent with medium-term fundamentals.
"While house prices may continue to fall, the probability of a further large correction in house prices has reduced. Alongside this, lending conditions have tightened significantly as banks' debt servicing assessments allow for higher interest rates," it said.
The bank said it will consult on the proposal with registered banks to reduce the loan-to-value ratio over the next two weeks and then a decision will be made.
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