The Reserve Bank of New Zealand is considering extending its current loan to value ratio limit for rental property investors in Auckland to the rest of the country by the end of the year.But the central bank, which is also New Zealand's banking regulator, stopped short of announcing an imminent tightening of lending to investors. This surprised currency traders, who had expected a tightening would give the Reserve Bank extra room to cut its Official Cash Rate from 2.25 per cent as soon as August 11. The New Zealand dollar rose as a result.Deputy Governor Grant Spencer detailed the Reserve Bank's thinking in a speech on Thursday evening to the New Zealand Institute of Valuers in Wellington, including calling on the government to reduce some of the tax incentives for property investors and suggesting a review of migration policy to take some pressure off house price inflation, which is running at double digit rates in Auckland and nearby cities.Spencer also re-emphasised the prospect of an increase in capital requirements for bank lending against housing, which could in theory slow lending growth and force the New Zealand arms of Australian banks to raise and retain extra capital at a time when the Australian parents are being forced to do the same at home by APRA.Spencer said a dominant feature of the housing market's resurgence since March was an increase in rental property investor activity, accounting for 43 per cent of sales in Auckland and 38 per cent in other regions.He said the bank's main tools to address the financial stability risks from such high house price inflation driven by investor activity were LVR limits (already in place), capital overlays for housing lending (already in the Reserve Bank's tool kit but not used yet) and a debt to income (DTI) multiple limit (a measure not yet in the tool kit or developed).Spencer focused his comments on lending to investors, pointing out that lending to investors was growing twice as fast as for the overall market.One option was tighter LVRs to "counter the growing influence of investor demand in Auckland and other regions, and to further bolster bank balance sheets against a housing market downturn.""Given the growing housing market pressures across the country, one approach would be to adopt a single national LVR limit for investors. Given that the banks have much of the relevant systems work in place, we expect that such a measure could potentially be introduced by the end of the year," he said.Spencer said another option (already flagged in May and June) was a DTI speed limit to complement existing LVR limits."A DTI and LVR in combination would constrain credit growth and house price pressures on a more sustainable basis than would LVRs alone," he said, although he noted a DTI would need to be agreed with the Finance Minister Bill English before being included in the bank's Macro-Prudential tool kit."Adoption would require more analysis and systems preparation than an extended LVR. We intend to consult with the banks