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Property market confidence still low in Australia despite interest rate cut

The number of new mortgages taken out has declined steeply as buyers either can't get finance or don't want to buy.

The Australian Finance Group mortgage index shows the number of mortgages sold fell by 17% in August. Volumes slipped 20% to $1.91 billion, falling below $2 billion for the first time since December 2006.

AFG, Australia's largest mortgage brokers, said potential borrowers might be waiting to see what happens with interest rates but the lowering of home loan rates last week by 25 basis points is not enough.

'The cut is a welcome signal that the rate cycle is on the way down and it was great that the banks have passed the full reduction on,' said AFG general manager of sales and operations Mark Hewitt.

'But borrowers have suffered death by a thousand cuts over the last seven years of rate rises, and it will take more than one 25 basis point drop to see confidence return to property markets,' he added.

The AFG mortgage index also shows confidence about future rate cuts is low. Only 4.9% of new mortgage buyers opted for fixed rate mortgages in August. That compared to a peak of 25.3% for fixed rate mortgage sales in February.

Property investors, who make up 30% of new mortgage buyers, remained constant suggesting that long term confidence in the underlying value of property markets remains strong, AFG said.