The Reserve Bank of New Zealand has agreed a memorandum of understanding with Finance Minister Bill English that will give the bank the power to limit low equity mortgages as soon as July.The agreement on a range of macro-prudential tools has been foreshadowed since the banking regulator asked for submissions in March and said it wanted a framework in place by mid-2013.The level of urgency has ramped up through early 2013 as house price inflation has surged in Auckland and Christchurch, sparking Reserve Bank warnings it may have to hike interest rates to prevent a wider inflationary break-out.  It is also worried about growing risks to financial stability."These new tools could be used from time to time to help avoid extremes in credit and asset price cycles," said Reserve Bank governor Graeme Wheeler."They can promote financial stability by helping to build capital buffers and reduce incentives for speculative behaviour, which can contribute to boom-bust cycles in credit and asset prices," Wheeler said.The agreement requires the bank to consult with the Minister of Finance but leaves the final decision with the bank and the governor, in particular.The four tools agreed are all in line with the RBNZ's March proposals, including adjustments to the ratio for core or stable funding, a counter-cyclical capital buffer, capital overlays for lending in certain sectors and restrictions on high loan-to-valuation ratio mortgage lending.Restrictions could include limits on the share of high LVR lending banks could undertake as a percentage of total lending, as well as outright restrictions on the proportions of equity required for a loan. The finalised framework comes soon after the bank increased capital requirements for high LVR lending for New Zealand's Big Four Australian-owned banks. The RBNZ said it would consult further with the banks over the next two months to work out the implementation details for the tools, so they could be used if necessary.English said, in releasing the memorandum with the 2013 Budget, that excessive credit growth was at the core of the global financial crisis."As many countries have seen in recent years, boom and bust cycles in credit and asset prices can pose real risks for home-owners and businesses, and destabilise banking systems," he said."They can also pose a significant risk for the Government's balance sheet. Improving macro-prudential policy is therefore an important step in reducing vulnerability to future risks."The New Zealand Bankers Association denied the Auckland housing surge over the last year was a credit-driven bubble and welcomed the Government's announcement last week with Auckland Council of plans to grant consents for 39,000 houses over the next three years. This would be a tripling of the numbers receiving consents over the last three years.NZBA chief executive Kirk Hope said price pressures should start to ease as these houses are built."This will lessen the need to apply any macro-prudential tools," Hope said.