In October the Reserve Bank will introduce new limits on lending to property investors in the Auckland Council area that would require those borrowers to have at least a 30 per cent deposit.

The Reserve Bank said the potential for a sharp correction in the Auckland market has increased since its November report, with investors the key source of new demand for the city, accounting for about a third of new lending in the six months ended March 31.

Early Reserve Bank data suggests investors make greater use of interest-only loans, which might partly reflect their ability to offset mortgage expenses against income tax, and those loans are likely to be more highly geared than owner-occupier mortgages.

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