The number of people buying homes with a deposit of less than 20 per cent is rising for the first time since the new mortgage-lending limits were introduced.

Banks say the rules, which prevent them from lending more than 10 per cent of their new loans to those borrowers, initially saw the number of prospective buyers drop significantly because they thought they would be declined a loan.

About 4.3 per cent of new home loans in April were to those borrowers, up from 3.6 per cent in March, according to Reserve Bank figures out yesterday.

The figure was 11.5 per cent during October, the month the new rules began, before dropping off.


The recent lift was despite the central bank raising interest rates.

Banks loaned $4.67 billion for new mortgages last month, $253 million of which was to people with deposits of less than 20 per cent.

Since the rules were introduced, the Reserve Bank has hiked the official cash rate twice, to 3 per cent, and has said it expects to keep the restrictions in place until at least the end of the year. Kiwibank spokesman Bruce Thompson said there had been an over-reaction from prospective buyers who thought they were going to be declined a home loan because of a lack of equity and didn't bother to apply.

"The number who approached us fell away but it has started to pick up again now."

He said some people were unaware of the Government-backed Welcome Home Loan scheme, which is excluded from the LVR restrictions and was specifically tailored for first-home buyers.

The income-related scheme, which Mr Thompson said worked best in provincial areas, allows buyers to purchase a property with a lesser deposit, in some cases with 10 per cent or even 5 per cent.

BNZ spokesman Thor Bostelmann said that since the lending caps were introduced, all banks were running about 5 to 7 per cent of their loans above 80 per cent loan-to-value ratios.

"This is a significant reduction from levels prior to the RBNZ changes.


"We are also seeing a definite increase in activity and promotions from the banking industry in the home loan space. This is benefiting home loan customers across the board, with strong cash-back offers and market leading rates for customers."

He said the restrictions had created competition and among the incentives the bank was offering to attract and retain home loan customers was a $3000 cash-back offer.