UPDATED 5.46PM Westpac and ANZ will no longer lend to overseas-based buyers of New Zealand property - with other banks expected to follow the move to shut the door on foreign investors.

LISTEN ABOVE: Massey University banking expert Claire Matthews joins Larry Williams to discuss the move

The restrictions follow moves by Australian banks to stop lending to foreign buyers of property.

Westpac New Zealand has announced that from today it will no longer lend to non-resident borrowers with overseas income.

Borrowers on temporary resident visas will only be accepted if they have both a New Zealand address and a New Zealand-based income.

ANZ has also announced restrictions that will effectively shut out most non-resident, overseas-based borrowers, including restricting lending to owner-occupied properties.

The restrictions will not affect New Zealand passport holders living abroad and purchasing property funded by overseas income.

A Westpac spokeswoman said the restrictions “reduces risk”.

“Verification of foreign applications is essential to meeting our lending criteria and obligations, but is operationally difficult in these cases.”

An ANZ spokesman said the changes were made to ensure the bank was “appropriately positioned in the current housing environment, taking into account supply pressure in certain areas”.

Auckland mortgage broker Bruce Patten, of mortgage brokerage Loan Market, said he expected more banks to follow Westpac and ANZ.

The majority of non-resident, overseas-based buyers would take out New Zealand bank loans for purchases here, unless they paid cash, Mr Patten said.

"Most banks around the world won't take security in a country other than their own...it is going to cut any overseas purchases out. They are either going to have to pay cash or have somebody in New Zealand purchase for them."

Mr Patten believed the change was partly driven by the Australian-owned banks wanting to follow developments across the Tasman - but there could also have been pressure from Government or the Reserve Bank.

"If this has an impact on slowing the house price rise down, then perhaps they might decide that they don't need to bring [other] measures in."

Labour's Finance spokesperson Grant Robertson said the restrictions showed the banks acknowledged both that the housing market was "out of control", and that overseas-buyers were playing a big role in that.

"It's the goal of a bank to make money from mortgage lending. If they are pulling back from lending on New Zealand housing, then there really is a crisis in the market."

Housing Minister Dr Nick Smith said the decision was Westpac's to make.

"It is entirely a matter for them or any other bank...what is very different is for the Government to regulate and ban a particular buyer.

"The evidence is that foreign buyers are a negligible impact on the housing market."

Dr Smith said he was not worried about the move, or any signal it sent about the housing market and risks within it.

Data released by Land Information New Zealand (LINZ) last month showed that 474 out 11,955 houses sold between January and March went to non-residents.

Last year, the Labour Party prompted a public uproar after producing data which showed that up to 40 per cent of Auckland houses were being sold to people of Chinese descent, who only made up 10 per cent of the city's population.

Labour's estimate was based on people with Chinese-sounding surnames and did not differentiate between non-residents and residents.

The LINZ data was the first snapshot of the level of non-resident activity in the housing market.

Officials warned that there were some limitations to the data and it was not an authoritative guide to the level of foreign investment in New Zealand's residential property, and Labour dismissed it as worthless.

The moves come as the Reserve Bank today left the official cash rate at 2.25 per cent, with Governor Graeme Wheeler flagging rising house prices as a risk to the country's financial stability.

Wheeler said investors could soon be targeted by new Loan to Value lending rules. He could not give detail on how restrictive any new LVR rules could be.

"We are still doing analysis. We would hope to be in a position by the end of the year to have made a decision on that. It could be earlier," Wheeler told a Parliamentary select committee today.

The Loan to Value ratio (LVR) is the amount of a loan compared to the value of a property. It is calculated by dividing the amount of the loan by the value of the property.

Last November the Reserve Bank tightened LVR rules to rein in Auckland investors, ensuring banks demand 30 per cent deposits for a mortgage secured against an investment property.

Wheeler said work was being done looking at separate income-related restrictions on mortgage lending.

However, any introduction of debt-to-income restrictions would be complex, and LVR changes could come first.

The Government has a Memorandum of Understanding (MoU) with the Reserve Bank on which tools it can use to curb mortgage lending.

The MoU would have to be amended before an income cap could be introduced.

Last month, the Government said it could not rule out debt-to-income restrictions as a potential response to cool the housing market and prevent "a bubble emerging".

It is already used in the United Kingdom, where most buyers cannot get a mortgage higher than 4.5 times their annual earnings.

"The issues are quite complex...particularly when you have house price to income ratios in Auckland of around nine to one," Wheeler said of possible income-related restrictions.

In response to questioning from Labour MP Clayton Cosgrove, Deputy Governor Grant Spencer said most lending that was high debt-to-income was to investors, as opposed to owner-occupiers.

"Debt-to-income at the appropriate threshold, in terms of the hurdle, will impact investors more than owner-occupiers."

The overseas-buyer restrictions come shortly after ANZ announced it would no longer give loans to investors buying apartments off the plans, or empty sections.

And Westpac no longer offers its special home loan rates to property investors.