The impact of tough new lending rules on New Zealanders ability to borrow has been revealed.
One in five home loans are now being declined and a third of consumer finance applications rejected, according to the credit bureau, Centrix.
Banks are now more cautious since becoming legally liable for irresponsible lending.
The changes to the Credit Contract and Consumer Finance Act (CCCFA) also require them to take a deeper dive into people's spending habits.
It was designed to target predatory lending but in practice it's having wider implications.
Before the rules came into force on December 1, 30,000 home loans were approved on average every month.
But now it's down to 23,000, wiping nearly $2 billion off the amount banks lend each month.
The managing director of mortgage broker Squirrel Mortgages, John Bolton, said it’s hitting the housing market.
"It's making it slower, harder, a lot more paperwork. But the risk is it's going to lock first home buyers out of the market, it's going to get a lot harder for older people to borrow," said Bolton.
He said it was "dangerous" for the economy and has started a petition to get the regulations urgently reworked.
"Responsible lending is a good thing. But it's the nuances that are causing the problems," said Bolton.
The Commerce and Consumer Affairs Minister David Clark has asked for an inquiry to be brought forward into whether banks and lenders are implementing the law as intended.
He acknowledged it's early days of the new regulation and other factors could be driving the tightening up of credit.
“It may also be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution,” said Clark