The Kiwi dream of owning your own home is about to get tougher for many New Zealanders.
From October, people will need more money to buy a house under tight restrictions on home loans revealed by the Reserve Bank this afternoon.
The restrictions are an effort to cool the rampant housing market without hiking interest rates.
The New Zealand dollar fell to a week-low after Reserve Bank Governor Graeme Wheeler announced the restrictions. The kiwi fell as low as 79.73 US cents and traded at 79.87 cents, down from 81.18 cents yesterday.
From October, low deposit mortgages - those where people are borrowing more than 80% of a home's value - will be severely cut back.
Retail banks will be required to restrict low deposit mortgages to no more than 10% of all their lending.
With a baby on the way, young Auckland couple Matt and Sam Duncan are in a race to buy a new home.
"Property out there is going so quickly at the moment," Sam said.
"But just the price range and what you're actually getting for the house, we're finding you're not getting a lot for your money."
Like many young home buyers they don't have a 20% deposit and rely on a big loan from the bank.
The drastic action from the Reserve Bank to cool the housing market will make life even tougher for others like them.
New Zealand Bankers' Association regulatory director Karen Scott-Howman says people need to know that come October 1 they might have their loans declined because of the restrictions.
"It's going to effectively half the amount of lending that banks can do in the low equity market," she said.
Political fallout
The last time New Zealand saw restrictions on lending of this kind was under Robert Muldoon in the 1980s.
Back then the government called the shots. Now the Reserve Bank Governor does, independently.
Finance Minister Bill English said today that the Governor is making a decision he believes is going to keep interest rates lower for longer and keep our banking system stable.
"Those seem to be reasonable objectives but there can be differences of opinion about how to achieve them," Mr English added.
Unable to convince the Governor to exempt first home buyers, the Government took pre-emptive action last week with a $64 million first home buyers' package.
But Labour says the Government is floundering on the housing issue.
"They should be clamping down on speculators. They should be building large numbers of affordable houses," said Phil Twyford, Labour's housing spokesman.
"They are doing neither of those things, that's why they have got into this terrible mess."
Grace period
The Duncans are philosophical about the prospect of missing out on a loan.
"If it is then it's one of those things that we'll live with until we've got enough money to go again, unfortunately," Matt said.
But with their bank already agreeing to lend them money they could be one of the lucky ones.
The Reserve Bank has signalled it will give banks a six month grace period to honour pre-approved loans.
Interest rate hopes
ONE News political editor Corin Dann says the hope is that by using these restrictions the Governor will not have to hike interest rates so fast and so steeply over the coming year.
"So if you've got an existing mortgage, then you've probably got reason to be happy about this because you should have interest rates lower for longer," Dann said.
"If this works it should mean that house prices don't climb as fast as had been thought. And that of course will help first home buyers because they might find it easier to get in the market," he said.
But he also said that a lot of questions around this policy remains and it was disappointing that the Governor wasn't made available to media today.
"I think he can expect a pretty torrid time when he fronts up for his next monetary policy statement," Dann said.
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