BNZ has further toughened its lending criteria

This programme amplifies existing restrictions. Since November 1, banks have been able to lend only 10% of their total lending to properties with an LVR of less than 20%.

That rule meant lower LVRs could still be applied in some cases, to wealthy individuals, for example, as long as the 80% rule applied on average.

But the BNZ has now extended that principle to everyone.

“Customers who are buying an existing property as an owner-occupied home will now require at least a 20% deposit across the board,” the bank said.

“We continually review our lending policies and we’ll work with any affected customer to help assess the different options they might have.

“BNZ continues to lend on new-build homes with at least a 10% deposit.”

An exemption will also be made to in-progress applications which already had a conditional loan approval certificate by December 18.

Meanwhile, Kiwibank earlier adopted a similar practice.

It said Kiwibank was empathetic to the challenge faced by first home buyers.

But it also acknowledged the desire of the Government and the Reserve Bank to address strong housing market dynamics.

“The demand for over 80% LVR lending has been, and continues to be, very strong, so we are actively having to balance the lending we have already approved with pre-approvals to ensure ongoing compliance with our Conditions of Registration.” Kiwibank said.

“This means for the time being, Kiwibank is unable to accept pre-approval applications over 80% which do not meet the regulator’s exemption criteria.”

These exemptions apply mainly to new builds.

Meanwhile the Auckland mortgage broking firm Squirrel thinks this move by the two banks will be of limited duration. 

“It's just transitory,” said the company chief executive John Bolton.

“Both of these banks have been caught out by having too many low deposit pre-approvals at a time when the rules are changing.

“So they are just going to have to slow down a lot more because they were going so fast before hand.”

Bolton said the move was only temporary, and would last for only two or three months. 

“This change is being made just so that they don't breach the cap.”