The Reserve Bank is to ease the lending restrictions on home buyers from January.
In a statement released this morning the central bank said from the start of next year that it would increase the cap on banks from 10 percent to 15 percent for new mortgage lending to owner occupiers.
Currently no more than 10 percent of loans can go to owner occupiers with a deposit of less than 20 percent.
It will also ease the restrictions for investors.
At the moment only 5 percent of lending to investors can have a deposit of less than 40 percent. That will increase to allow deposits of 35 percent for no more than 5 percent of investor lending.
Reserve Bank Governor Grant Spencer said loan-to-value ratios (LVRs) had been in place since 2013 to address financial stability risks arising from rapid house price inflation and increasing household debt.
"These policies have helped improve banking system resilience by substantially reducing the share of high-LVR loans."
Spencer said in the past six months pressures on the housing market had continued to moderate due to further tightening of the LVRs, a firming of bank lending and an increase in mortgage rates.
"Housing market policies announced by the Government are also expected to have a dampening effect on the housing market."
Spencer said in light of those developments the Reserve Bank was undertaking a modest easing of the restrictions.
He said the bank would monitor the impact of the changes and only make further adjustments if financial stability risks remain contained.
"A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards."
