The Reserve Bank is to further restrict lending as it develops a new tool tying debt to income as it warned of a "problem" of too much risky lending.
On Tuesday the central bank and Finance Minister Grant Robertson announced they had agreed a deal to amend their agreement on tools the Reserve Bank can use to limit lending.
This clears the way for the Reserve Bank to develop a new debt-to-income restriction, so long as it avoids as best it can hitting first home buyers.
But the announcement came with a sharp warning from deputy governor Geoff Bascand who described the level of risky lending in New Zealand as a "problem".
"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," Bascand said.