A Rate Cut 'Would Have Aided Affordability for First Home Buyers'

A cut in interest rates would have improved affordability for first home buyers but not enough to encourage them to make a purchase, according to the Real Estate Institute of Australia (REIA).

After the Reserve Bank of Australia left interest rates on hold on Tuesday (March 5), it was made known that the percentage of first home buyers in housing finance commitments dropped from 31.4 per cent in May 2009, to 14.9 per cent in December 2012.

REIA president Peter Bushby explained that data from the December quarter shows that while affordability is improving, the number of first home buyers entering the market won't significantly increase.

He said: "While declining interest rates have been the major contributor to an improvement in housing affordability it appears that first home buyers need more than interest rate cuts to encourage them to enter the market.

The Australian Bureau of Statistics Housing Finance data found increasing activity in transactions, Mr Bushby suggested, with first home buyers not reacting to the interest rate drops from last year.

Mr Bushby highlighted state government decisions which have a negative impact - with the New South Wales, Queensland and South Australian governments abolishing first home owner grants for people who buy existing properties.