The growth in house prices and lending has slowed so the risks to banks have also lessened, the governor of the Reserve Bank says.
In its six-monthly update on the health of the financial system, the Reserve Bank said housing pressures have eased, because of loan-to-value ratios, or LVRs, and tighter retail bank standards.
The LVR limits will be relaxed from 1 January 2019, with banks to be allowed to have up to 20 per cent of their lending to first home buyers with less than a 20 per cent deposit.
Currently, the limit is 15 per cent of new loans.
The limit on bank lending to residential property investors has been also relaxed.
Banks will be able to have five per cent of their lending to investors, but the required deposit has been eased to 30 per cent from the current 35 per cent.
Reserve Bank Governor Adrian Orr said growth in house prices and lending has slowed and so the risks to banks have also lessened.