The Real Estate Institute wants first-home buyers carved out from mortgage lending restrictions in the face of shrinking house sales numbers.
The REINZ house price index was unchanged in July from a month earlier and was up 1.2 per cent from July 2016, the real estate agents group said.
Excluding Auckland, house prices rose 7.5 per cent from a year earlier, while in Auckland they were 2.1 per cent lower.
Nationwide sales volumes dropped 25 per cent last month compared to July 2016, with Waikato sales dropping 32 per cent and Auckland sales down 31 per cent.
The national median house price increased 3.4 per cent to $518,000 in July from last year, while the median number of days it took to sell a home rose to 35 days from 31 days.
Record migration and low interest rates have bolstered the country's housing market, prompting the central bank to clamp down on the level of high loan-to-value ratio mortgages in an effort to reduce the risk to the nation's financial stability.
In Auckland, the country's largest city where rising prices have made housing unaffordable for many, the median sales price dipped an annual 1.2 per cent to $830,000, although REINZ chief executive Bindi Norwell said the city would "likely to be protected from significant price decreases in the short term" due to the housing shortage and population growth.
"The number of sales across New Zealand has dropped significantly in comparison to the same time last year," she said.
"A key reason for this is that the two biggest hurdles to purchasing a house right now are access to finance as the banks continue to tighten their lending criteria and LVR restrictions."
This created an "intimidating barrier to entry", particularly for those trying to save for their first home, she said.
"The LVR restrictions have done their job of slowing the market, but now it seems they are acting as a handbrake which is why REINZ is calling for LVRs to be reviewed for first time buyers."
Nationwide, more houses moved into the $500,000-to-$750,000 price bracket, with 27 per cent sold for that in July, compared to 24 per cent last year.
Fewer were sold for less than $500,000, at 47.8 per cent compared to 49.4 per cent a year earlier, and the proportion of houses selling for over $1 million dropped to 12.9 per cent from 13.8 per cent last July.