The Reserve Bank is pushing for powers to impose income-based lending restrictions though it says it would not use them right now.
The central bank wants to be able to use debt-to-income (DTI) restrictions which limit the amount people can borrow relative to their income.
The Reserve Bank yesterday gave the financial system a clean bill of health but again warned of risks that could test the banks' soundness.
Governor Graeme Wheeler said one of those threats was the rise in the number of heavily indebted households.
"DTI ratios - debt to income ratios in terms of lending above a ratio of five - that's been increasing for first home borrowers.
"Some people ... will be vulnerable if mortgage rates do continue to rise."
About a third of new mortgage lending is conducted at a debt to income ratio of over six.
Deputy governor Grant Spencer said the bank would not use a DTI tool right now.
"We are keen to have the debt-to-income prudential tool in the toolkit, so that if there was a resurgence in the housing market, if there was a further pick up in credit, that we'd be in a position to respond to that," he said.
The bank needs the government's permission to use such restrictions - and Finance Minister Bill English is noncommittal.
"The bank's got a range of tools for dealing with the financial stability issues related to the housing market.
"The government isn't just focused on that.
"We've got to think about the impact on different parts of the population and any wider economic costs so that's why we're working through the issues."
Asked if there was a chance he would turn down the Reserve Bank's request Mr English replied, "of course that's possible".
Prime Minister John Key believes the current efforts on housing appear to be enough.
"The question is, is [the DTI ratio] necessary? There's a lot of things the government's been doing; a lot of tools have been applied. So far on the day it seems finally to be working."
At yesterday's Finance and Expenditure Select Committee, National's Wairarapa MP Alastair Scott said DTIs would be harmful to borrowers.
The idea was "at best unnecessary and at worse a bad idea because of unintended consequences."
Households are facing the prospect of higher interest rates, due in part to the so-called Trump effect of the American President-elect's plans to slash taxes and spend more.
With two-thirds of home borrowers on lending terms of one year or less, that pain might start being felt soon.
With an election at the end of next year, the government may be loath to give the Reserve Bank powers that could make it even more difficult for first time buyers to get on the property ladder.