The Reserve Bank has warned that the overheated housing market is at growing risk of a correction and it will re-introduce loan-to-value ratio (LVR) rules at the tougher end of expectations.
The rules mean most investors will be required to have a 30 per cent deposit from March but that will rise to 40 per cent from May.
Most other owner-occupier buyers will require a 20 per cent deposit.
LVR restrictions were removed in April 2020 to ensure they didn't interfere with Covid-19 policy responses aimed at promoting cash flow and confidence.
"Since then, in part due to the success of the health and economic policy responses, we have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace," said Reserve Bank Deputy Governor and general manager of financial stability Geoff Bascand.
"We are now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging, with many buyers becoming highly leveraged.
"A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn.
As a first step, from March 1 LVR restrictions will be reinstated at the same level they were set at prior to the onset of Covid-19.
But a further tightening of investors' restrictions takes effect on May 1.
The two-step process was necessitated to accommodate the operational capabilities of the banks.
From March 1, 2021:
• LVR restrictions for owner-occupiers will be reinstated to a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be reinstated to a maximum of 5 per cent of new lending at LVRs above 70 per cent.
From May 1, 2021:
• LVR restrictions for owner-occupiers will remain at a maximum of 20 per cent of new lending at LVRs above 80 per cent.
• LVR restrictions for investors will be further raised to a maximum of 5 per cent of new lending at LVRs above 60 Per cent.
In a speech this morning, Finance Minister Grant Robertson also warned further government action was coming to cool the housing market.
"There is a crisis when it comes to the housing situation right now in New Zealand," he said.
Robertson said the Government planned to "tilt the balance" toward first-home buyers and wanted to incentivise new builds.
National house prices set records for the fourth month in a row in December, according to the Real Estate Institute.
National house prices could rise by as much as 13 to 16 per cent in the next few months,