New Zealand property values increased at slowest annual pace in nine months in May as interest rates increased and loan to value restrictions weighed on the entry point of the market.

House values rose at an 8.2 per cent annual pace in May, the slowest annual pace since an 8.1 per cent increase in August, according to state agency Quotable Value.

Residential values rose 0.7 per cent over the three months ended May 31.

The Reserve Bank hiked interest rates for the first time since the global financial crisis in March to head off inflation. Rates went up again in April and the bank is expected to increase rates again next week, raising mortgage costs.

Last October, the bank also introduced loan-to-value ratio limits on high-debt lending to cool the housing market on concern rapidly accelerating house prices in Auckland and Christchurch could lead to an asset bubble and cause financial instability.

“Sales volumes around the country are 10 to 15 per cent lower than they were this time last year which could be a normal winter seasonal effect but it could also be a precursor to values dropping,” QV spokeswoman Andrea Rush said in a statement.

“The LVR lending restrictions continue to have an effect in many regions with activity significantly slower at the entry level of the market.”

Values in Auckland increased at a 13.1 per cent annual pace in April and were up 0.7 per cent over the three-month period, QV said.

“In Auckland the picture is mixed,” said Bruce Wiggins, QV valuer. Prices across the city had been variable with South Auckland picking up, but central suburbs like Grey Lynn and Ponsonby missing vendor’s expectations, he said.

In Wellington, house values rose at a 1.8 per cent annual pace in May, while Christchurch values increased at a 7.6 per cent annual pace.

Nationwide, values are 13.9 per cent above the previous market peak of late 2007, QV said.

By Suze Metherell