Banks are likely to be able to lend hundreds of millions of dollars more to people with small deposits than they have been lending.
Banks are allowed to lend up to 10 percent of their total net new lending on mortgages to people with less than a 20 percent deposit.
The more banks' total lending grows, the more they are able to lend to people with small deposits.
Commitments to lend in March were the highest by a wide margin for any month since the lending restrictions came into force in October last year.
Total commitments to lend on mortgages in March surged 36 percent from February to $5.26 billion from $3.86 billion, according to Reserve Bank figures.
The Bankers' Association expects the amount banks lend to people with small deposits should rise to about 8 percent of total new mortgage lending in the next three to four months.
That's in spite of the current bank loans to those with people with less than a 20 percent deposit falling to a 3.6 percent share of new mortgage lending in March - well below the limit of 10 percent of new mortgage lending.
The publisher of website mortgagerates.co.nz, Philip Macallister, believes people with small deposits have been discouraged from even applying for mortgages and that's killed demand.
Mr Macallister says while banks initially wanted to turn the tap off on lending to such people, they may find it difficult to turn that tap back on again.
Bankers' Association chief executive Kirk Hope said abiding by the restrictions is a condition of banks keeping their banking licences so they have been understandably cautious.
The Reserve Bank imposed the restrictions from October because it was worried banks were lending too much to people with small deposits and it wanted to protect the banking system from the risks this posed. The central bank was also worried about rampant house price inflation.
Deputy governor Grant Spencer said on Tuesday the Reserve Bank believed the restrictions had reduced house price inflation.