Latest NewsHomebuyer Enquiries on the RiseTuesday, 21 March 2017

Interest rate stability and a more relaxed approach to lending by banks are encouraging first-time buyers back into the housing market, having dropped to the lowest level in four years.

But one economist says the Reserve Bank would need to hold fire on raising rates for a few months more if lending is to bloom.

New lending data released by the Australian Bureau of Statistics on Monday showed that borrowing by households and business rose by 5.2 per cent in July, but was still down six per cent from a year earlier.

Commonwealth Securities economist Savanth Sebastian said the frequency of interest rate increases earlier this year did take its toll.

"However, there are tentative signs that conservatism is now thawing and the Reserve Bank needs to allow it to bloom," Mr Sebastian said.

"The Reserve Bank would be best served by waiting for a couple of months to gauge the strength of the recovery before deciding the next move on interest rates."

Speculation that the central bank may lift rates before the end of the year has intensified in recent weeks after a string of upbeat economic data, not least last Thursday's strong employment report.

The Reserve Bank left the cash rate unchanged for the fourth month in a row at last week's monthly board meeting, saying that policy was "appropriate for the time being".

This followed six rate increases between October last year and May.

One mortgage broker said it saw a near 28 per cent increase in the number of inquiries from potential home buyers in August compared to the previous month.

Loan Market chief operating officer Dean Rushton said some banks were easing their lending requirements as a result of an improved economic outlook.

"Many banks in response to the global financial crisis reduced their loan to valuation ratio (LVR) to around 90 per cent, which meant first home buyers needed a much bigger deposit," he said.

"But we are now seeing changes in policy with some banks increasing their lending ratios," he said.

Official home lending data released last week showed the proportion of mortgages taken out by first home buyers was just 16.1 per cent in July, only a shade above a four-year low recorded in June.

Mr Rushton said new entrants into the housing market have been less active since the federal government's more generous housing grant was wound back at the end of last year.

During the height of the government's boosted first home owner's grant - that doubled to $14,000 for existing homes and trebled to $21,000 for new properties - the proportion of new buyers struck a record high of 28.5 per cent in May 2009.

Mortgage Choice spokeswoman Kristy Sheppard said banks that have eased their lending criteria are offering loans for 95 per cent of the purchase price, requiring a deposit of five per cent plus other purchase costs such as lenders mortgage insurance and legal fees.

She said demand for fixed rate loans has risen for the first time in three years and are often popular among first timers, being more likely to need peace of mind over repayments.

"With lenders tipped to soon raise their variable interest rates independently of the cash rate cycle, fixed rate loans are looking more attractive," she said.

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