The number of people who received mortgages in the first quarter of this year was 30 per cent down on 2009, as house sales stalled and investors worried about possible tax changes in the Budget.

One-third fewer mortgages were approved in the 13 weeks to April 9, compared with the same period last year, while the overall value of loan approvals dropped 25.2 per cent to $578.2 million.

The major banks granted 4438 loans in New Zealand in the first quarter of the year, the biggest 13 week drop since the Reserve Bank began recording percentage changes in 2005.

The biggest increases of about 30 per cent were recorded between October and November 2005, and then about 25 per cent at the height of the property boom in June 2006.

The figures are compiled by the Reserve Bank of New Zealand from about 95 per cent of home loan lenders in the New Zealand market.

Property expert Olly Newland said property turnover had slowed, reducing the numbers of mortgages being approved.

Newland said some investors were also clearly "spooked" by speculation the Government could stop property investors claiming depreciation tax breaks in the May 20 budget.

At the same time more people were renting as they came to realise it was cheaper than owning a property, while capital gain remained so elusive, he said.

Mr Newland said the Government would be silly to interfere in the hundreds of billions of dollars that were tied up in the investor market.

"I think we have two to three years of flat market ahead of us, but of course tomorrow something else could happen to change that," he said.

As a result of this a short-term interest rate war had erupted between the banks and some banks had loosened their lending criteria.

The median floating rate on mortgage.co.nz for all the major banks was 5.87 per cent yesterday, while two-year fixed rates were tracking at 7.15 per cent.

Lee Hatton, Head of Retail Northern Region, at BNZ said overall the market had softened with prospects for new lending slowing down.

"In comparison to this time last year, we have seen less customers looking for approvals, but our overall approval rate has actually increased for this period."

Hatton said the bank looked at the customer's overall financial position when assessing home loan applications and in some cases may lend up to 100 per cent of the value of the property, she said.

The customer's ability to service the mortgage, their savings record, family circumstances, level of debt and credit history all factored, she said.

Goldman Sachs JBWere economist Philip Borkin said talk of changes to the tax system on property investment had left many investors sitting on the fence while a sharp rise in longer-term mortgage rates had also added to the dip in numbers of people taking out loans.