The August rate hike spooked investors and homebuyers away from the property market, possibly denting the nascent recovery in the sector.
Loan cancellations soared by 13.6% in the same month, following the 25 basis point rate hike by the Reserve Bank of Australia, according to a CommSec report.
The Australian Bureau of Statistics also showed that the value of new home loan commitments fell by 0.3% to 22.19 billion in the same month, while investment loans plunged by 4.5% as investors moved their money away from property.
The value of home loans that were advanced but not taken up jumped by 28.6% in August compared to a year ago, while potential homebuyers cancelled $2.03bn worth of previously committed loans in August - a 21% rise from last year.
Martin Arnold, equities economist with CommSec, wrote that investors have steered away from property, and better returns available in other areas have resulted in record-topping loan cancellations in August.
"The renewed hesitance of property investors will be felt for many months to come. Anyone who had been planning on purchasing a home or an investment property would want a greater amount of certainty as to the likely level of interest rates before handing over their hard-earned cash," he said.
The good news is that owner-occupier loan approvals rose in August. Arnold noted that owner-occupiers have been the only source of growth in property amidst the strong job market.