Banks have been told that from September, no more than 5% of their lending should be to investors with a deposit of less than 40% of a property’s purchase price.

But banks are clamping down early and shutting down lending already.

James Lockie, of General Finance, says it will have unintended consequences for the Reserve Bank, which is trying to retain stability in the housing market.

He says most people who have been homeowners for a number of years will have enough equity that the new rules won’t bother them. Those most affected will be young investors starting out, he says.

“It just means a different group gets to buy [investment properties]. It can’t be first-home buyers buying investment properties flatting with friends. But it does allow someone who has had five or 20 years to buy another one. That’s not necessarily what the Reserve Bank was aiming for.”

Financial adviser Hannah McQueen says it is pushing young people to buy a home to live in, when sometimes buying an investment property would be the most sensible starting point.

“They spend more because they want to live in [the property] and are emotionally attached, it just doesn’t make sense.”

Andrew King, executive officer of the New Zealand Property Investors’ Federation says while landlords have become an enemy in the eyes of much of the public, most New Zealanders do not realise that the vast majority of landlords are operating on a small scale.

“They’re not the buy/sell mega-rich fat cats that everyone makes us out to be. Realistically it is the small investor who is going to be affected,” he says.

King says it is likely rents will rise as a result. “If you make it harder for people to provide rental properties, you are making it harder for their tenants. Rents are going to go up as long as they keep whacking property investors. Everyone needs a home and at the moment tenants are really struggling. There’s a lot of overcrowding going on.”

A Horizon poll found 22% of people who say they had been planning to buy an investment property in the next 12 months would not do so if they are required to have a deposit bigger than 30%. Another 21% say they would delay. About a third would still buy.

Horizon says the new policy will have a slightly greater impact in the Auckland market: 29% of the Auckland respondents definitely looking to buy an investment property say they would not buy if the deposit required increased above 30%. Another 17% say they would delay buying, while 27% say they would still buy.

Commentator Olly Newland says those who are in the market for capital gain will form partnerships and groups to purchase properties regardless.

“They won’t think about the nuts and bolts of how it will all work, and there will be problems.”

He says it is likely investors will focus their attention on new builds, which will remain exempt from the LVR rules.

“They will start putting money into new builds and that will push new build prices up. So that will make it harder for firsthome buyers again,” he says.

"Also, it means we now have a fullyregulated market which dictates who can buy and what they can buy. And we don't want that. We want a free market. So there are definitely consequences. Mostly bad. The only positive is that it will dissuade people from going completely crazy. We all think house prices are too high. So if this tempers the market that will be a good thing.”