New Zealand's property market has cooled a little as restrictions on the level of low-equity home loans and rising mortgage rates have tempered demand, the NZ Reserve Bank says.
Annual house price inflation slowed to 8.8 per cent in January from a pace of 9.7 per cent in October, with the moderation influenced by its limits on the level of high loan-to-value ratio mortgages, the bank said.
The prospect of a higher official cash rate -- raised to 2.75 per cent today after three years at 2.5 per cent -- has fed into increased mortgage rates over the past six months, and that added to the moderation.
"Restrictions on high loan-to-value ratio mortgage lending are starting to ease pressure, and rising interest rates will have a further moderating influence," governor Graeme Wheeler said in a statement.
"However, the increase in net immigration flows will remain an offsetting influence."
Mr Wheeler imposed the speed limits on home lending on deposits of less than 20 per cent from October last year to try and cool a bubbling property market and the threat it posed the nation's financial stability in the event of a sharp correction.
In the monetary policy statement, the bank says much of the housing market's moderation appears to be related to the lending limits, and the early data is consistent with its expectation the restrictions will lower annual house price inflation by between 1 and 4 percentage points, and trim household credit growth by between 1 and 3 per centage points.
The bank said it's too early to determine how persistent the slowdown will be, and the level of high LVR lending may rise now commercial banks have worked through their pipeline of pre-approvals and adjusted to the new regime.
At the end of January, about 40 per cent of mortgages were on floating rates, down from 53 per cent a year earlier, and about 73 per cent were on floating or a fixed rate of less than one year.
"Over the past six months there has been an uptick in borrowers fixing for more than two years, but this still makes up a small proportion of the total," the bank said.