The Reserve Bank has fine-tuned the regime to restrict home-lending for borrowers with small deposits, but reiterated that banks will get just two weeks' notice before any new rules are imposed.
The central bank has settled on a 'speed limit' approach to proposed restrictions on high loan-to-value ratio mortgage lending, effectively reducing the volume of low-equity lending banks can offer in a given period rather than banning it outright.
In response to the consultation period, the RBNZ will give lenders a six-month window where low-equity lending limits are measured at an average rate, and then impose the restrictions for lending in excess of $100 million a month over a three-month average rate.
Banks with mortgage lending below $100 million a month will be expected to meet the speed limit over six-month rolling windows.
Deputy governor Grant Spencer reiterated that any decision to impose the restrictions would be announced two weeks before they took effect.
The penalty for breaching any restrictions would be determined on a case-by-case basis, and be in line with the Reserve Bank's normal supervisory and enforcement practices.
The Reserve Bank has been looking at introducing the restrictions as part of its new macro-prudential tools to help cool asset bubbles, and as property markets in Auckland and Christchurch are spurred by a lack of housing supply.
Spencer said the bank will be "maintaining a close dialogue with the banks" to ensure they stick to the spirit of the new rules, not just the letter of the regulations.
"They will need to ensure that the policy is not avoided or undermined through innovative lending practices," he said.
The bank regulator doesn't plan to prescribe what constitutes avoidance activity, but hasn't ruled out doing so in the future.
The central bank will be watching lenders to see if they try and reclassify assets to get around the residential lending restrictions, and "would not be inclined to treat such behaviour leniently," it said in its response to submissions.
The RBNZ will only impose the restrictions on the New Zealand balance sheet of overseas branches of registered banks operating locally, and not the international branches. However, the local branch would be prohibited from assisting other parts of the international bank from writing low-equity loans in New Zealand.
Certain lending categories would be exempt from the restrictions, including Housing New Zealand mortgage-insured loans, bridging loans, refinancing loans and low-equity loans to borrowers moving home but not increasing their loan amount.