Mortgage lending rules are to be toughened after the government has given the Reserve Bank approval to tighten loan-to-value ratios and move to bring in debt-to-income ratios.

In a statement, Finance Minister Grant Robertson says the central bank will start consulting on reducing low deposit lending by banks to no more than 10 per cent of their total lending from the current 20 per cent. The measure will come into force on October 1.

The government has also given RBNZ approval for debt-to-income ratios or interest rate floors, to ensure borrowers can afford to service mortgages.

"This change will ensure that the Reserve Bank has the flexibility to respond to emerging financial stability risks and deploy appropriate tools as required," says Robertson.

He says debt-to-income ratios will be designed to minimise any negative effect on first home buyers, with consultation starting in October.

The moves followed changes made at the start of the year to cool the housing market, which have proved largely ineffective in slowing the 20 per cent annual growth in house prices.

RBNZ deputy governor Geoff Bascand says the further restrictions are needed to ensure the financial system is strong, and borrowers are able to cope with any economic and financial pressures such as rising interest rates.

"We've already made adjustments to Loan-to-Value Ratio (LVR) restrictions to partially manage this risk, but we haven't seen a sufficient reduction in risky lending."

"If house prices were to fall, some buyers could face the possibility of negative equity - which means the value of their property is below the outstanding balance on their mortgage," says Bascand.

The RBNZ will consult on the DTIs and interest rate floors from October, a process it says will take at least three months.

Robertson says the aim of the previous and new moves has been to improve the affordability for first-home buyers. Earlier moves have been aimed at property investors.

Robertson says they have also clarified in the memorandum that the bank will need to avoid negative impacts on first-home buyers where possible.

"I believe this agreed wording will set clear public expectations while maintaining the operational independence of the Reserve Bank. It is still up to the Reserve Bank how it chooses to introduce any restrictions, having had regard to this condition," says Robertson.

CoreLogic head of research Nick Goodall says the prospect of new lending restrictions had come as a shock, because they were likely to hurt first-home buyers

"Fewer buyers will be able to get into the market with less than a 20 per cent deposit [and that] is going to mean there's going to be less demand, so it should create some downward pressure [on house prices]."

That will affect first-home buyers the most because they often found it difficult to save enough for deposit, he says.

Goodall says he did not expect debt-to-income ratios to come into effect this year.

RNZ.