Restrictions on banks lending to people with low deposits could be removed by the end of the year.

Since October 2013, banks have been restricted so that no more than 10% of their new mortgages are to borrowers with low deposits.

In a speech today deputy governor Grant Spencer said the Reserve Bank believes the lending restrictions were achieving their purpose.  The housing market looks to have slowed in the six months since the LVR restrictions were introduced.

"The volume of house sales has dropped considerably across the country, other than in Canterbury, and the slowdown in volume has also been reflected in prices.

"The financial system is less vulnerable to an adverse housing shock and banks are now less exposed to potential credit losses as the interest rate cycle turns upwards."

The earliest date for beginning to remove them was likely to be late in the year.  Before it removed the restrictions the bank wanted to be confident that the housing market was responding to interest rate increases and that immigration pressures would not cause a resurgence of house price pressures.

Source: NZ Herald and full speech by The Reserve Bank