He said there was some uncertainty on the impact of the restrictions, which start at the end of the month.
The official cash rate was kept on hold at 2.5% and Wheeler said it was not expected to move until next year.
The extent and timing would depend on movements in the exchange rate and to what extent house price inflation spilt over into the rest of the economy.
But he said that could be affected by the effectiveness of LVR speed limits. Banks will be required to keep their high-LVR lending to less than 10% of their loan books from the beginning of next month.
The Bank expects the move will restrain house price growth by 1% to 4% over the next year.
Wheeler said it was helpful that a number of mainstream banks had already started to increase their low-equity premiums. “There are fewer special offers in the market and there’s anecdotal evidence that it's getting more difficult to get high LVR loans.”
He said most of the impact of the speed limits would be felt over the next 12 months. Quarterly house price inflation is expected to ease next year.
Wheeler said the Government had asked for first-home buyers to be exempted from the LVR rules but they made up 40% of high-LVR borrowing.
He said his wariness was informed by his experience living in the United States. When the global financial crisis hit, 25% of US mortgage holders were placed in negative equity.
“You saw median real household wealth fall by 39% between 2008 and 2010. Clearly house prices were overvalued in the US and they’re significantly overvalued in New Zealand. To the extent that you did get a rapid correction in house prices, that would have very significant effects on the economy…. The most severely affected would be those who came in with very low deposits.”
Wheeler said house prices were significantly overvalued, which created stability and inflation risks.
