Following the Government's housing market changes and the reintroduction of LVR rules, mum and dad investors and more recent entrants into the investment sector are beginning to pull back.
Craig Pope of Loan Market in Wellington has seen "60% less investor loans" in recent months, with activity balanced by a rise in successful first home buyer activity.
"I think investors are reaching a point where it’s just too much debt to keep leveraging," said Pope.
The same trend was noted by Glen McLeod of Edge Mortgages, who has noticed a decline in purchases among investors that have one or two investment properties.
He added: "The hard-core investors don’t seem to be too bothered by the changes."
McLeod said some investors had begun to borrow to prepare their rentals for sale after getting "sick and tired" of market conditions.
He added buyers were reluctant to keep existing family homes as investments as they moved to a second house.
"This is [the] real shame of this law where the clients are actually wanting to help with their own retirement. The only option that they really get left with ... is KiwiSaver or investing into stock shares and bonds.
"I’ve been watching with interest for the number of petitions that have been going around relating to trying to stop this change, and look forward to the outcome of the consultation process at the same time," McLeod added.
The comments come as new data from CoreLogic underlines the impact on investor activity.
According to Q2 data, the largest falls in mortgaged investors' market share over the past three months was among buyers with two properties after their latest purchase, and those with three or four properties.
"These smaller investors are potentially affected most by the tighter financing requirements and also perhaps take the more cautious path as they wait to assess what the final rules might actually be," said CoreLogic's Kelvin Davidson.
The CoreLogic data shows mortgage investors’ share of purchases in June was 24.2%, the lowest since June last year, and 25% for the three months to June.