First homebuyer loans plunged 40%

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Rising interest rates and surging property prices have spooked many potential buyers from entering the market, according to new data.

Loan Market said home loan approvals to first homebuyers plunged by a massive 40% during the first quarter of 2010, compared to the previous quarter. The number of overall home loan approvals dropped by 15% over the same period.

Dean Rushton, Loan Market chief operating officer, said the dramatic drop was the result of rapid increases in interest rates.

"The RBA's interest rate strategy has certainly had an impact on the home finance sector," said Rushton. "There's a strong possibility of another 0.25% rise from the RBA next week, but the mortgage broking industry and particularly homebuyers would like to see the central bank leave things alone for a while. We would be very concerned if the RBA continued moving the cash rate back to pre-Global Financial Crisis levels of around 7%, as our own surveys have found mortgage holders are carrying significant debt levels."

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