Rules slash number of low-deposit mortgages but house buyers still encouraged to ask.

Banks say inquiry levels for those wanting to borrow money to buy a home have plummeted since the Reserve Bank's clampdown on low-deposit lending, leaving them scurrying to remind the public they are still open for business.

On October 1 the Reserve Bank introduced a 10 per cent cap for all new lending to those with a deposit of less than 20 per cent.

The banks must meet the requirements or face losing their licence to operate.

Figures released by the Reserve Bank show the percentage of new lending where the borrower has equity of less than 20 per cent has fallen from 26.5 per cent in September to 12.8 per cent in October.


Excluding exemptions, such as Housing New Zealand's Welcome Home Loans scheme, the lending fell to 11.7 per cent.

Shaun Drylie, ASB's general manager of product and strategy, said approvals had effectively halved but inquiry levels were down even more.

"Initially there was a spike up in activity as people rushed to get in ahead of the change. Now if we look at it, a lot of the people coming in to ask have dropped away."

Drylie said there appeared to be a belief that the banks were not doing any lending to those with a deposit of less than 20 per cent.

"People are seeing it as quite a binary thing - it's either on or off.

"I think demand has got to the stage where they aren't asking and maybe they should."

Fred Ohlsson, ANZ managing director retail and business banking, also said demand had fallen away.

"With the amount of media attention in the last three to six months the demand for greater than 80 per cent loans is coming down.


"People are just not asking the question whereas previously they all would have asked."

Bruce Thompson, head of communications at Kiwibank, said there was a perception among first-home buyers that there was no point in even asking if they could get a mortgage.

"One of the things is the perception - don't even try because they will say no. We are saying, 'Do try - the door is still open'."

Thompson said Kiwibank was giving first-home buyers priority over people looking for an investment property or trying to top up their loan.

The bank had some flexibility because it offered Welcome Home Loans, which were excluded from the low equity quota. Borrowers need have only a 10 per cent deposit for such a loan but must meet house price and earning caps.

Westpac head of retail Ian Blair said the bank had to assume the new low deposit rules were a permanent fixture.

"That is the assumption we have got to make. But it won't surprise me if the requirements evolve."