"From a broad financial stability perspective, that makes sense to me.
"A switch from interest-only to principal repayments could cause some strains for people, but the recent history suggests that the banks will also try to work with those borrowers to avoid hardship wherever possible," Davidson said.
Bruce Patten of Loan Market said: "Banks are a lot more reluctant to give interest-only loans. It's become much harder. You have to give a very good reason to get that sort of loan on an owner-occupier property.
"The Reserve Bank said there were too many people on interest-only loans. It's a bit of an unwritten rule, but it's now a maximum of five years for an investor to an interest-only loan and only two years for an occupier/owner."
Owner-occupiers might get those riskier loans by telling the bank they have money coming from an inheritance or would sell another property and then convert to principal and interest loans, Patten said.
Patten said those lending volumes generally were down, which means those risky loans declined overall as well.
Getting extensions to interest-only loans was almost impossible now. Borrowers once got 10-year interest-only loans which rolled over automatically but now these loans were reassessed.
At least half of interest-only loans were now not reapproved and every lender does a full examination of the terms and conditions, Patten said.
"I totally agree with the way the banks are doing that," he said, because it protects the borrower who has the loan and ensuring they could afford it.
"At some point, those borrowers have to start paying the loan off," Patten said.
Banks said they still made interest-only loans.
ASB said: "Interest-only loans are available to both investors and owner-occupiers who meet our current lending criteria for this type of loan. We'd encourage anyone thinking about the affordability of their lending to get in touch because we have a range of support options available, including interest-only loans."
A Westpac spokesperson said: "We have made no changes to the availability of interest-only home loans. These loans are available to investors and owner-occupiers for short-term periods, where appropriate to their circumstances."
Its policy is to allow these loans for a specific period.
"With an interest-only loan, you are repaying only the interest amount as it accrues on your outstanding balance and none of the principal. An interest-only loan will cost you more interest in the long term than a table or reducing loan because you're not paying off any of the principal during the interest-only period," Westpac tells borrowers.
"Because you still have to repay your loan before your maturity date, your repayment amounts after the interest-only period ends will be higher. Interest-only loans are only available on a short-term basis to ensure you can still pay down the loan before your maturity date," Westpac says.
Kiwibank said such loans remained available for investors "and in some cases owner-occupied borrowers, both short-term and situational. In line with our policy, customers are assessed on a case-by-case basis and personal circumstances are taken into consideration," a spokesperson said.
An ANZ spokesperson said: "We haven't made any changes to our policy on interest-only lending for home loans."
A BNZ spokesman said of interest-only loans: "No changes to policy."
However, one property investor was convinced there had been a deliberate change. He said he knew of at least one major trading bank which had granted two-year interest-only loans was now telling a borrower they must convert to full principal/interest loans.
"The effect will be catastrophic. If you had a $1m loan and were paying 2.5 per cent interest, that would be $25,000/year repayments. But with interest rates now around 5 per cent, the repayment is already rising $50,000/year.
"If interest plus loan principal is now required, repayments could go to $70,000 to $80,000/year," he said.
- Additional reporting Tamsyn Parker
