Getting a home loan may get more difficult and more expensive in the next year unless banks are able to raise more money from the local market, says ANZ chief executive David Hisco.
Hisco made headlines in July with an opinion piece for the Herald warning that the housing market was "overcooked" and of the risk of a crash.
There had been some positive signs since then that the market was cooling, but the issue facing banks now was the volume and cost of international funding they needed to meet local lending requirements, he said.
Deposits from local savers are failing to keep pace with the amount of mortgage lending banks need to do as the cost of buying a house surges.
That's requiring banks to borrow more from offshore markets where costs are rising.
In response banks had already started to tighten their lending criteria and "be a little bit more selective about where they lend," Hisco said.
This, along with the introduction of the Reserve Bank's more aggressive loan to value ratios, was having a cooling effect on the market, he said.
But there was a risk banks would have to continue to "tweak" approvals if the trend continued.
The big four banks - ANZ, ASB, Westpac and BNZ - had been borrowing roughly $80 billion a year in offshore funds but that had jumped to around $90b in the last year.
"That's quite a large increase in one year and you couldn't expect us to continue to increase like that," Hisco said.
"We need to temper the amount of funding we are getting from offshore," he said.
"We need local deposits. And that also means that banks will look to tweak what they approve so that the volume they require doesn't run away from them.
"We borrow from offshore and we're really no different to a household. There is an extent to what people are prepared to lend us at certain rates and if we want to borrow large volumes we have to pay more and that would flow into funding costs for our borrowers."
Hisco rejected suggestions that tough lending criteria was to blame for the recent failure of a number of residential apartment development, saying tighter lending criteria was not targeting any one sector.
"We haven't really changed our policies," he said. "We've always required a certain number of pre-sales before a development can start. I think what's happening is that by the time developers get the required pre-sales [and] they come back to us and say they're ready to go and we sit down and run our eye over the numbers again ... the cost of building materials has risen and they can't make the profit that was promised. So they don't really want to do it either."
Baseline inflation remains low at just 0.2 per cent, however, building costs having been rising by about 8 per cent per year.
"We've seen new LVR rules come in requiring investors to have a deposit. People are thinking more about whether they should really be buying an investment property. So I think we've seen a cooling in that side of the market and that's a good thing," Hisco said.
Interest rates also looked like they had bottomed out as talk in the US turned to rate hikes.
"That makes people pause about buying decisions. And it has meant that some investors have put their properties on the market and we're seeing more properties come on the market."
There had also been progress on the Unitary Plan and the Government was taking a look at immigration - although that was still largely driven by Kiwis returning home, Hisco said.
But the risks were still there.
"This can't be solved by any one party, it can't be solved by the Government, Reserve Bank, banks, councils, or anyone. It requires everyone to take think about what they can do and to take some action."