Deutsche Bank economist Darren Gibbs says the Reserve Bank's dealine of 1 October on low deposit home loans will lead to a softer housing market.
The Reserve Bank on Tuesday announced it was giving the mortgage-lending banks six weeks' notice that from 1 October, no more than 10 percent of their new mortgages by value can be to people with deposits of less than 20%.
In a speech at Otago University, Governor Graeme Wheeler said he was concerned at the rate at which house prices were rising and the potential risks this posed to the financial system and the broader economy.
Mr Gibbs said the new restriction could have a significant impact on the housing market and predicted a 10-15% drop in house sales.
"So that's clearly going to take pressure off the housing market, take pressure off prices, and I think the distribution of that impact will be more heavily weighted towards Auckland.
''That's where the higher prices are, that's where the higher mortgages are and the high LVR (loan-to-valuation ratio) mortgages, in particular," Mr Gibbs said.
"So the impact is clearly a softer housing market."
However, the rest of the country would benefit from lower interest rates than would otherwise have been the case, and possibly a lower currency as well, he said.
ASB to be hardest hit
The lending restrictions will hit ASB hardest; its latest disclosure statement showed net new lending on mortgages was $852 million in the June quarter and that 73%, or $625 million, was to those with less than a 20% deposit.
In the March quarter, lending to people with less than a 20% deposit was 71% of the total.
Chief executive Barbara Chapman said last week the bank was cutting back on such lending.
"We are conscious that the Reserve Bank does want banks to dial back on lending to customers who have a deposit less than 20%, so over the last quarter we have been doing that," Ms Chapman said.
"Certainly, the amount of high LVR lending going through our book now is less than it was three and six months ago."
Other major banks appear to have already pre-empted the central bank's move.
ANZ's statement showed only 3.2% of the $903 million in net new mortgages it lent in the June quarter was to people with small deposits. Westpac had only 0.6% of its net new lending in the June quarter in this riskier category.
The Bank of New Zealand and Kiwibank are yet to release their June statement.
RBNZ Governor Graeme Wheeler said on Tuesday how long the lending restrictions remained in place would largely depend on how effective they were in restraining the amount of mortgage lending and the rate of house price inflation.