Property developments are going to struggle to get off the ground as bank lending tightens over the next six months.
The Reserve Bank has conducted a special, out of cycle, credit conditions survey to understand how lending practices have changed since lockdown.
It's found the availability of commercial property loans was already constrained before the lockdown, but had since fallen to a net -38.4 percent from -10.4 percent.
Banks said they were cautious about lending due to the uncertainty surrounding depth and duration of the downturn, which has affected market confidence and pre-sales in residential property.
Infometrics senior economist Brad Olsen said the outlook isn't likely to improve.
"We are going to see developers across the country struggle to get their projects moving, that is for commercial property and also for residential.
"That ability to access loans is going to to come to a bit of a pinch point in the next few months you'd expect."
Big and small businesses are also expected to cut back on investment.
The survey found demand for business and commercial loans was strong, but the availability of credit could not meet demand.
Banks reported their main focus was to support existing customers who wanted cash on hand, with new clients being carefully scrutinised.
Olsen said he expects to see a diverse spread of business loans issued going forward.
"Those businesses who have a clear plan of action and can prove [that] to their banker are going to find it easier to get access to loans."
He said those businesses who do not have their "ducks in a row" would struggle to get help from their banks.
However, Olsen said it cut both ways, as he expected more businesses to be cautious taking on debt.
"Businesses may well defer, delay or completely cut out planned capital spending and the need for additional loans in some area.
"They're going to be looking out at the economy figuring there's not quite as much economic activity going forward."
He said businesses would realise they do not need to expand their operations.
KPMG's head of financial services John Kensington told Morning Report that many households are also in the same position as businesses - cautious about taking on more debt.
"A lot of that confidence is driven by fear of your job, fear of how your business is going to go, so at that point you're not going to take on debt."
Kensington said that lack of spending will cause further strain on industries such as tourism as New Zealanders hold onto their cash.
The survey also found low interest rates would not be enough to offset the economic impacts of Covid-19.
Demand for residential mortgage loans dropped by a net negative 24 percent in June, from 8.3 percent in March.
Banks have also tightened up on home loan lending, driving down the availability of mortgages.
The outlook isn't bright either.
Banks expect demand and credit availability for home loans to remain in negative territory for the rest of the year, with one bank predicting a rise in mortgagee sales when the government's financial assistance schemes begin to roll off.