New Zealand's financial system is sound but housing market vulnerabilities remain a key risk and the central bank still wants to curb high debt-to-income lending if necessary, it said in its twice-yearly financial stability report.

House price inflation has moderated since the last report and banks are more resilient to a market downturn, but houses remain overvalued in many parts of the country and some home owners are vulnerable, the Reserve Bank said. “A further resurgence in house prices would be of real concern, given…