Banks will face restrictions on low deposit home loans from the start of October.
The Reserve Bank will limit banks' mortgage lending on deposits of less than 20% of a property's value to no more than 10% of new lending.
Some argue first time home buyers, who make up a third of new lending, will be unfairly hit.
Bill English. Photo: RNZ
But Finance Minister Bill English says it's always been hard for them to raise the required amount, and the alternative of higher interest rates might not make it any easier for them.
"As the Governor pointed out today, if he doesn't bring in these restrictions one alternative is he lifts interest rates - and that would not be good for first home buyers either."
Mr English says the Government's focus is increasing the supply of houses to help bring down house prices.
The Reserve Bank is concerned Auckland's overheated housing market could collapse, and damage the country's financial system and the broader economy.
Some banks have already taken steps to reduce their exposure to low deposit home loans.
The Bankers' Association argues the real problem is a lack of supply of houses in some regions, not the availability of cheap credit.
Head of the Prosper mortgage broker group, Geoff Bawden says he believes only a third of the previous volume of low deposit lending will be approved under the new rules.
Ultimately, he says, more than just first home buyers will be affected and the plan may slow the housing market down without having any dampening effect on prices.
Mr Bawden says as in the past, some first home buyers will resort to family to get them past the threshold.
