The effective limit on bank mortgage lending to people with low deposits is likely to be only about 5% of total lending.
From next Tuesday, the Reserve Bank has said no more than 10% of a bank's mortgage lending can be to people with deposits of less than 20% or they risk losing their banking licences.
New Zealand Bankers' Association chief executive Kirk Hope says banks won't want to risk damaging their reputations by losing their banking licences if they breach the limit.
He predicts lending to people with deposits of less than 20% is likely to be only about 5% of total lending because banks will be conservative in applying the lending restrictions and want to build in a buffer so they don't breach the new limit.
Mr Hope says the banks are working hard to meet the new requirements because the Reserve Bank has made the limits a condition of bank registration, so banks don't want to do anything to jeopardise their licence to operate in New Zealand.
However, he says considerable systems changes will be necessary to ensure banks do not breach those limits.
Mr Hope says the association made a submission to the Reserve Bank saying the timeframe for implementation of the new rules should be six months, to allow banks to get their systems in line and their front-line staff trained with regard to the new requirements.
But he says that was rejected and the Reserve Bank went for a six week implementation period, with a six month period for banks to get up to speed with the changes.
Publisher of specialist mortgage and property investment magazines and websites Philip Macallister says pre-approved loans for auctions when the potential buyer has a low deposit loan will not exist anymore.
He says pre-approved loans are likely to disappear from the market, which is a good thing.
"Pre-approvals are essentially giving a buyer a licence to shop and real estate agents have used that to try and get people to buy houses - they say 'oh hey great you've got a pre-approval let's go to these auctions and buy you a house'."
Mr Macallister, who publishes New Zealand Property Investor magazine and landlords.co.nz, says although the new rules will mean many first-home buyers won't be able to buy a house, they won't hurt most property investors.
He says a recent survey of property investors shows one in 10 is debt free and 60% have an LVR of less than 50% at the moment.
Mr Macallister says property investors have huge equity in their portfolios and they will be able to go out and buy.