According to the Reserve Bank of New Zealand (RBNZ), lending values have risen by 7.2 percent over the last 12 months.  Much of this movement took place in the latter half of the year, with other figures from the Real Estate Institute of New Zealand (REINZ) also showing increased lending activity in recent months.  While mortgage speed limits have definitely slowed the market over the last year, the recent surge in lending is a strong indicator of increasing house price inflation in 2015.

According to the RBNZ, LVR restrictions have helped cool the housing market without adversely affecting first home buyers.  While new mortgages with a loan-to-value ratio above 80 percent have dropped slightly to 8.5 percent of the market, surprisingly, three-quarters of first home lending is below the 80 percent threshold.  Overall, investors accounted for 29 percent of new lending, with first home buyers making up 9.5 percent and other owner-occupiers accounting for 60 percent.  4 percent of investors borrowed above the 80 percent threshold, compared with 25 percent of first home buyers and 8 percent of other owner-occupiers.

With residential lending on the rise, RBNZ governor Graeme Wheeler is unlikely to ease lending restrictions.  "We don't consider it appropriate to ease LVR restrictions at this time," said Wheeler, also pointing to strong migration figures as a possible catalyst for house price inflation.  Westpac have come out with a similar forecast in recent days, doubling expectations for house price inflation from 3.5 percent to 7 percent in 2015.  Strong lending figures are not the only factor, however, with global commodity prices and a rising population also likely to influence rate decisions.

According to Westpac chief economist Dominick Stephens, cheaper oil prices and slowing inflation are enough to make an interest rate hike unlikely before the end of 2015.  However, the possibility of unsustainable housing demand makes an official cash rate drop just as unlikely.  "For the housing market, a further reduction in fixed mortgage rates would be like spiking the punch at a party - things will get raucous, or even a little out of hand." says Stephens.

"Population growth is booming. The economy is strong. The election has passed. Interest rates are low. Everything points to a housing market resurgence," Stephens says, adding "We now expect that at some point over the coming year the Reserve Bank will either tighten its limits on high-LVR mortgage lending, or to enact some other form of macro-prudential restriction with a similar effect."