Loan-to-value ratio restrictions will be eased from January 2018, the Reserve Bank has announced.
The LVR is the percentage that a bank will lend against a mortgaged property, compared to the value of the property.
From January 1 2018, no more than 15 percent (from the current 10 percent) of bank's new mortgage lending to owner occupiers can be at LVRs of more than 80 percent.
No more than 5 percent of each bank's new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent).
Reserve Bank Governor Grant Spencer said New Zealand's financial system remains sound and risks to the system have reduced over the past six months.
The new Government's policies were also expected to have a dampening effect on the housing market.
"The Bank will monitor the impact of these changes and will only make further LVR adjustments if financial stability risks remain contained. A cautious approach will reduce the risk of resurgence in the housing market or deterioration in lending standards," Mr Spencer said.
The loan-to-value ratio restrictions were put in place to protect the housing market from financial instability.
From 2013, banks were permitted to make no more than 10 percent of their residential mortgage lending to high-LVR (less than 20 percent deposit owner occupiers.
From 2016, they also were restricted to no more than 5 percent of residential mortgage lending to high-LVR (less than 40 percent deposit) investors.