ANZ New Zealand has slowed its lending growth to a housing market it considers over-heated as it posted a lower profit and warned about higher overseas funding costs.ANZ NZ reported annual cash profit of NZ$1.5 billion, down nine per cent from a year ago because of a doubling of provisions for bad debts and a nine basis point fall in its net interest margin to 2.35 per cent over the year. The biggest New Zealand bank has taken a more cautious approach in the New Zealand housing market since June, when it tightened its lending criteria for rental property investors and called on the Reserve Bank to introduce a 60 per cent deposit requirement for investors, rather than the 40 per cent requirement introduced from October 1. ANZ NZ's mortgage market share fell to 31.5 per cent at the end of September from 31.6 per cent at the end of March as it grew lending in the second half of the financial year at a slower pace than the rest of the market for the first time in more than two years. Chief executive David Hisco told Banking Day in an interview that ANZ was cautious about growing lending in a market where house prices were historically high, interest rates were historically low and wages had not risen as fast as house prices."We'd like to see a bit caution around investors who are Johnny-come-latelies who jump in and think this is how it is and prices keep rising, because it's not necessarily guaranteed going forward," he said.Hisco also pointed to a rise in the domestic funding gap for the banking system to around NZ$10 billion in the last year as borrowing growth had rapidly overtaken growth in household deposits. The Reserve Bank of New Zealand requires the banks to fund at least 75 per cent of their lending from term deposits and long term bonds, which restricts banks from simply diving into international wholesale 90 day commercial paper markets to bridge the funding gap. Such borrowing has also become more expensive in recent months because of regulatory changes making it more difficult for US money market funds to buy such paper."There's a limit to what we can go offshore to borrow without being charged significantly more, and so if you follow that through it means that asset prices can't continue to be funded ad infinitum," he said."There needs to come a time when they need to have a pause. If you listen to some of the market anecdotal evidence, maybe we're seeing the Auckland market having a pause, and it's probably a good thing."Hisco pointed in particular to rental property investors in smaller towns and cities who were not considering whether higher prices were justified by population or income growth. "If wages haven't grown and population hasn't grown, then you need to be sure that you're making a sensible investment," he said.Hisco was cautious about whether the Reserve Bank should adopt a debt to income (DTI) multiple limit, arguing that