Less than two weeks after saying it would tighten lending restrictions for rental property investors by the end of the year, the Reserve Bank of New Zealand surprised bankers and investors alike by announcing it would tighten the rules by September 1. Prime Minister John Key had called on the Reserve Bank to "get on with it" after Deputy Governor Grant Spencer disappointed many hoping for a greater sense of urgency in a speech he gave on July 7. Since then fresh data has emerged showing house price inflation running at over 25 per cent in some places at the same time as pressure is growing on the Reserve Bank to further cut interest rates to meet its inflation targets. The central bank both regulates banks and runs monetary policy, which means it faces conflicting objectives when CPI inflation is below its target range and it is worried about the financial stability risks from an over-valued housing market. The Reserve Bank announced on Thursday it would extend its restrictions on rental property investors in Auckland to the rest of the country and impose a new national limit on Loan to Value Ratios (LVR) for investors of 60 per cent. That would tighten the limit for Auckland investors from 70 per cent to 60 per cent and cuts the leverage allowed for non-Auckland investors from 80 per cent to 60 percent. The Reserve Bank issued a consultation paper proposing the changes from September 1 with just 15 working days of consultation, saying the urgent action was needed to "further mitigate risks to financial stability arising from the current boom in house prices." "The banking system is heavily exposed to the property market with residential mortgages making up 55 percent of banking system assets. Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength. The proposed restrictions recognise the higher risks associated with such lending," Governor Graeme Wheeler said. The bank also said no more than ten per cent of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80 percent. Previously, the speed limit for non-Auckland owner-occupiers borrowing more than 80 per cent was 15 per cent. This is an effective tightening back to the ten per cent speed limit seen until November last year. That loosening from ten per cent to 15 per cent for non-Auckland owner-occupiers would therefore have lasted 10 months. The Reserve Bank said loans to build new homes would continue to be exempted. Wheeler then called for further action from the Government to address the housing boom. "The drivers of the housing market strength are complex and action is required on many fronts that extend well beyond financial policy. Broad initiatives to reduce the underlying housing sector imbalances need to remain a top priority," Wheeler said. "A sharp correction in house prices is a key risk to the financial system,