Fitch said New Zealand house prices had seen some of the strongest increases in the Asia-Pacific region since the start of the decade, but efforts by the authorities to slow the market appeared to gaining traction.
House price growth fell 4 per cent annually by October, it noted.
Policies proposed by the new Government could further moderate gains, it predicted. Those include a ban on foreigners buying existing residential property - limiting them to purchases of new property - and a more onerous tax regime for residential property investors.
"We expect only modest house price increases in 2018, and the latest LVR changes do not affect that view," Fitch said.
Macro-prudential measures were introduced in October 2013 and had helped to increase equity buffers for mortgages.
"This has made New Zealand banks more resilient to the potential impact of a housing market correction. Mortgages with a loan-to-value ratio above 80 per cent accounted for less than 8 per cent of all outstanding mortgages at September 2017, down from 21 per cent at September 2013, according to the RBNZ," Fitch said.
Any sharp house price correction could still hurt banks' balance sheets, especially if it occurred in conjunction with increased unemployment or sharply higher interest rates. Fitch noted, although it does not expect that.
"High indebtedness and slow wage growth make New Zealand's household sector particularly vulnerable to changes in economic conditions. A housing market correction would not only have a direct impact on mortgage asset quality, but would also impact household consumption, affecting the broader economy, including the performance of banks' business loans," Fitch said.
What happened?
• LVR easings were announced by the Reserve Bank yesterday;
• The change will apply from January;
• No more than 10 per cent of a bank's new mortgage lending to owner-occupiers can be at LVRs of more than 80 per cent;
• This cap will be lifted to 15 per cent;
• The 5 per cent cap on a bank's new mortgage lending to residential property investors that can have LVRs of more than 60 per cent will instead be applied to LVRs of more than 65 per cent.