First home buyers can now borrow up to $350,000, up from the previous cap of $280,000.
Other changes include extending the scheme to make it available for new builds and buying a first home on multiple-owned Maori land.
Housing Minister Phil Heatley announced the changes that will deliver a helping hand to first home buyers in higher priced areas around the country.
"Borrowers will still need to prove their ability to service loans; however the new cap reflects the reality of the situation many first home buyers in places like Auckland and Wellington find themselves in," Heatley says.
He also said banks were reluctant to lend to Maori groups for housing at present because multiple-owned land couldn't be used as a security for the loan.
"This of course fails to recognise the ability of prospective borrowers to service the loan, which is where this extension of the scheme comes in," he says.
Heatley says the change to include loans for houses to be built on land already owned by first home buyers is in a move to "encourage the building of new houses and in doing so stimulate the construction sector".
Housing New Zealand administers the scheme and has been given discretion to constrain lending large sums in areas where house prices are relatively low, and/or where there are no land charges (for example where the potential borrower already owns the land they wish to build on), taking into account factors on a case-by-case basis.
Loans that extend to the new offer will be available for eligible borrowers by November this year.
