Low-deposit mortgages will not only be harder to get from the end of this month, but they will be a lot more expensive.
From October 1, banks will be required to keep the amount of new lending to borrowers with a deposit of less than 20 per cent to no more than 10 per cent of their total mortgage lending.
That means banks will have to turn away up to two-thirds of low-deposit applications they receive.
But even those able to squeeze across the line won't be counting their lucky stars. Whereas first-home buyers six months ago were able to negotiate on rates and get assistance with things such as legal fees, and in some cases cashback offers from banks wanting to capture business, new low-deposit borrowers will have to take whatever they're given.
Banks are already hiking fees for people with less equity in properties, even among existing customers.
Kiwibank's one-year special of 4.89 per cent is only available to people with equity of 20 per cent or more. On a two-year rate, people with more than 20 per cent equity can have 5.75 per cent but those with less can only have the higher rate of 5.95 per cent.
ANZ charges a one-off fee to low-deposit borrowers, of 0.25 per cent of the loan for borrowers with an almost 20 per cent deposit, to 2 per cent for borrowers with a deposit of less than 10 per cent. It also reserves its best interest rates for people with more equity.
Westpac charges higher interest rates until a borrower's equity gets above 20 per cent, either through paying off the mortgage or an increase in the property value.
Borrowers with a deposit of 5 per cent pay an extra 1.15 per cent on top of the advertised interest rates. BNZ charges similar fees.
Broker John Bolton said no one was being let off the fees, and the situation had changed quickly.
First-home buyers six months ago would have been able to lock in a rate of less than 5 per cent, and had a range of sweeteners to choose from. Now they are paying up to 6.5 per cent and fees of about $4000 on loans of $500,000.
But Bolton said it was good news for borrowers with more equity - the banks would be keen to pick up that business and would be a lot more interested in negotiating.
"People below 80 per cent can still get a rate as low as 4.9 per cent. If you've paid off a bit of your loan, there are rewards there."
New Zealand Home Loans chief executive Mark Collins said low-deposit borrowers had no hope of looking for a better rate with another bank. The refinance market - where banks have tempted borrowers across from other lenders - would dry up under the new rules.
Banks can only refinance loans without them being counted under the new cap if the amount stays exactly the same.
Because almost all low-deposit borrowers are now charged a low-equity fee, it will usually not be possible to move to a new bank unless the borrower can pay it upfront. Collins said: "What does that do to competition between the banks? I'm not sure that's what the Reserve Bank intended."
Low equity fees a reality for new buyers
When Belinda Burns and partner Matariki Mitchell bought a house in Avondale recently, they knew paying a low-equity fee was going to have to be part of the deal.
They paid more than 1 per cent of the price of their $670,000 property.
Mitchell said: "Some people say you're losing a percentage of your equity straight away, but at least we're in the market and paying down the mortgage."
They scoured Trade Me listings for properties that weren't going to auction to reduce their buying costs. Most Auckland properties are sold under the hammer.
"But when you have to spend money on a valuation and a builder's report, that's $1,200 just to attend an auction and you might miss out - you start going backwards really quickly."