The bank has announced it is withdrawing its preapprovals for buyers with deposits of less than 20%, from October 4.

An industry source said it was likely because the bank had overcommitted itself in the high LVR space and needed to quickly rein in lending ahead of new LVR speed limits.

He said other banks would probably follow suit.

From the beginning of next month, banks will have to keep their lending to customers with less than a 20% deposit to no more than 10% of their total loans.

An ASB spokesman said people who had been preapproved would need to reapply.

"We are encouraging affected customers to contact us to discuss their individual circumstances and how we might be able to assist them with a new pre-approved loan offer.  This may involve reviewing the amount of their current deposit and also the value of the property they are looking to purchase. We appreciate that this will be disappointing for customers who are impacted and we apologise for any inconvenience caused."

He said the move was necessary to comply with the Reserve Bank's restrictions. 

Hart said it had come as a shock. "This is going to destroy a lot of people's hopes and dreams going forward. But on the other hand, I don't blame ASB becuase they've got to get their house in order or there's a threat of losing their licence."

He said New Zealand had always worked off the basis of preapprovals and this seemed to be the beginnign of the end of that.