Westpac says there has been a big drop in property investors since new loan-to-value ratio rules aimed at the amount of low-deposit mortgage lending came into play last year.
However, the bank's lending to first-home buyers was up by 12 per cent in 2017 compared with last year.
The bank said there was a big lift in first-home buyer (FHB) activity outside of Auckland, the Bay of Plenty, and Taranaki.
"The majority of regions have secured the bulk of first-home buying, as high prices in Auckland continue to stifle FHBs from entering the market," the bank said in a commentary.
Data for the year to September 30, based on number of first-home-buyer mortgages, showed housing affordability proved an ongoing issue in Auckland (down 5 per cent) as it was in the Bay of Plenty (down 11 per cent) and Taranaki (down 15 per cent).
Westpac said loan-to-value ratio restrictions continued to dampen demand in Auckland.
"In saying that, based on our data, we have seen first-home buyers roar back into the market in Wellington and in many of the other regions, and this has been helped by the new investor LVR rules. Flat prices will assist that further."
First-home buying shot up by 43 per cent in Wellington, 26 per cent in Manawatu-Wanganui, 74 per cent in Marlborough, 30 per cent in Nelson and 44 per cent in Northland.
Westpac's data showed one in five first-home buyers were using KiwiSaver for their deposit.
"Flat market will allow incomes to grow, improving affordability and we think interest rates are going to stay low through next year. So that's all good news for first-home buyers," the bank said.
"We also expect the Government's policies on both the supply and the demand side will have some effect at the margins."