The Reserve Bank of New Zealand has been congratulated for dropping new lending restrictions on loans to build new houses.
New rules that came into effect on 1 October this year mean no more than 10% of a retail bank's mortgage lending can be to people with deposits of less than 20%.
The bank made the change after evidence from the building industry and retail banks indicated that lending limits on low deposit borrowers was having a greater impact on the building of new homes than previously thought.
The Reserve Bank said on Tuesday that the lending limits are designed to restrict demand - not supply - particularly in Auckland and earthquake-hit Christchurch. It said the exemption should help ease any potential constraints, estimating it could affect the building of up to 200 new houses a month.
After warning that the limits could force building firms to lay off workers next year the Registered Master Builders Federation welcomed the change, saying companies can now plan with more certainty.
Chief executive Warwick Quinn told Radio New Zealand's Checkpoint programme on Tuesday the rules have resulted in building inquiries dropping. Mr Quinn said the blow could have been much more significant if the central bank had delayed the exemption until 2014.
The Bankers' Association's chief executive, Kirk Hope, said the change would support the building of more houses and reduce pressure on the housing market.
"Supply - especially in Auckland - has been the big issue, and any policy that cuts across that is problematic. They've recognised that and adjusted the policy accordingly, so it's great news and it's credit to their flexibility and addressing the issue."
Reserve Bank deputy governor Grant Spencer said construction loans account for only about 1% of total mortgage lending. However, such loans finance about 12% of residential building activity which, at present, means about 200 consents to build new houses each month.
The exemption does not extend to purchases of newly-built houses, and the Reserve Bank still expected retail banks to act prudently.