There has been an exodus of first-time home buyers from the housing market, and it’s due to tough new lending rules, according to the latest survey by independent economist Tony Alexander and the Real Estate Institute.

A record 65% of real estate agents surveyed said they saw fewer first-time home buyers on the market in January.

This continued a downward trend in the last survey in early December, when 56% of agents said there were fewer young buyers.

But since then, changes to the law on the financing of consumer credit agreements (CCCFA) came into force and made the loan market more difficult.

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This, combined with rising mortgage rates, has meant that the proportion of mortgage applications converted into new home loans has fallen from 39% in October 2021 to 27% in January, according to the latest figures from Centrix.

There had also been numerous reports of people being denied mortgages due to minor transgressions, such as spending too much money on their dog. Others have had pre-approvals revoked.

The survey report indicates that the CCCFA changes have had a substantial impact on the market, especially for first-time home buyers.

While the government’s March 23 announcement of new tax policies for investors prompted many investors to back out of buying, the new rules prevented even first-time home buyers and seniors willing and well-capitalized to make purchases, says Alexander in the investigative report.

“The presence of first-time home buyers slumped from November after showing little change for most of last year,” Alexander said.

The presence of investors in the market also remained in decline. A net 57% of agents said they had seen fewer investors keen to buy a property, although that figure was up from a net 63% in April and May last year.

A record 89% of agents said a top concern for buyers was the inability to secure financing, while 69% said buyers were worried about interest rates,

The survey also recorded a record number of agents saying they saw fewer people at auction (59% net) and lower attendance at open houses (64% net).

Additionally, buyers’ fear of missing out (FOMO) had fallen to an all-time low, with only 20% of agents reporting seeing it in buyers.

This figure was down from 70% at the end of October and was below the average since April 2020 of 66%.

Alexander says agents reported buyers were feeling much less urgency and many were unable to buy because new lending rules made it difficult for them to get bank financing.

The situation was now weaker than immediately after the government’s tax announcement last year, leading to a rapid decline in investor demand, he says.

The survey from the Organization for Economic Co-operation and Development, released on Tuesday, indicates that New Zealand faces the risk of a sharp decline in house prices.

He lists more restrictive monetary and lending policies and higher interest rates, as well as easing construction supply shortages, as downside risk factors.

But CoreLogic’s head of research, Nick Goodall, said while the country could be vulnerable to some price declines, significant falls seemed unlikely, due to the strength of the labor market.

Trade and Consumer Affairs Minister David Clark has ordered an investigation into whether banks have overreacted to new lending laws.