which are available to borrowers at the discretion of their bank. floden, 2014 and cecchetti et al., 2011. the lvr policy can also work against the social objective of housing affordability. to be clear, the reserve bank does not have housing affordability as an objective, but it is sensible to be aware of the impact of our actions on the other goals of the government. a uniform calibration for the lvr restrictions, as was the case in late 2013 and 2014, is likely to restrict the access to credit for first home buyers, who tend to have less savings for a deposit and have not benefitted from previous house price appreciation. these controls that restrained first home buyers were necessary to protect the financial system, and to stop buyers from taking on too much debt and becoming distressed. in contrast, the effect on investors from a uniform lvr policy tends to be weaker in a rising market. we ’ ve recalibrated the lvr restrictions over time to target the riskier forms of investor lending, as the emerging evidence points to greater risks associated with highly leveraged investors. this also had the effect of rebalancing the burden of policy away from first home buyers. the share of new mortgages going to first home buyers has risen from 10 percent in 2014 to 17 percent by the end of 2018, a historically healthy level. in the recent years, first home buyers have accounted for the lion ’ s share of the high - lvr lending permitted under the policy ( figure 5 ). housing affordability remains an important challenge for public policy, and structural reforms are necessary to improve affordability in the long term. the lvr restrictions are for the purpose of enhancing financial stability, and aren ’ t suitable for addressing broader social challenges. figure 5 : first home buyer high - lvr lending % % share of all first home buyer lending share of all high - lvr lending exemptions can be used to mitigate the tension between the lvr and other public policies, so long as they do not undermine the financial stability objective. for example, the exemption on construction finance has helped to address concerns that the lvr policy is hindering new housing supply. the reserve bank ’ s consultation with stakeholders in all macroprudential policy interventions helps to inform the design of policy, including the exemptions. between november 2015 and september 2016, the reserve bank implemented targeted lvr restrictions for auckland borrowers, owing to high risks of a severe house

s our loan - to - value ratio policy, is the most well - known tool of macroprudential policy and upholds lending standards during the credit upturn, thereby lowering the debt burden of households ahead of a downturn. in the macroprudential toolkit8, we also have capital and liquidity tools that build additional buffers for banks, putting them in a better position to keep lending to the economy when things turn sour. while the liquidity tool – minimum core funding requirements – is in place, we haven ’ t adjusted it so far to limit risks to financial stability. so in practice our active use of macroprudential policy pertains only to lvrs. in addition to its financial stability role, the reserve bank also has responsibility for price stability. macroprudential policy and monetary policy are set for different objectives, but they do interact. for example, the official cash rate ( ocr ) may be raised in response to an upturn in the economic cycle, which generally helps with the macroprudential objective by moderating credit and house price growth. however, the impact of macroprudential policy on inflation is much smaller than the ocr, and the policy is not a lever for achieving inflation or employment goals. in general, macroprudential policy and monetary policy tend to be complementary, and together will maximise both financial stability and price stability. bascand ( 2019 ) explains in more detail how our regulatory tools fit together and complement one another. a memorandum of understanding between the reserve bank and the minister of finance lists four macroprudential instruments. these are the core funding ratio, the countercyclical capital buffer, the sectoral capital requirements, and the lvr restrictions ( english and wheeler, 2013 ). purpose relevant instruments macroprudential policy borrower restrictions ( lvrs ) reduce risk that the financial system amplifies a severe economic downturn prudential policy maintain baseline resilience of the financial system impact on financial system resilience impact on wider economy more resilient households and banks reduces potential severity of an economic downturn reduced losses in a severe economic downturn capital and liquidity instruments ( ccyb / scr ) lowers incentives on banks to deleverage in a downturn ; supports higher credit supply and economic activity capital buffers banks remain solvent through the economic cycle maintains market confidence and lowers risk of sudden increases in funding costs for households, businesses and the economy banks