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Bank rates dampen housing demand: report

AAP logoAAP 4/01/2017

Banks hiking mortgage interest rates out of cycle and failing to pass on official rate cuts are expected to dampen demand for housing this year, according to a new report.

The REA Group Property Demand Index shows demand for housing on the company's realestate.com.au website surged 16.6 per cent in 2016.

However, the report shows demand peaked in October and November, before slipping by 6.6 per cent in December.

REA Group chief economist Nerida Conisbee said the fall in demand at the end of the year is likely due to banks hiking rates in late November and early December.

She said demand could track lower given that lenders have indicated they won't pass Reserve Bank of Australia rate cuts onto borrowers.

"We expect out of cycle interest rate rises by banks to continue," Ms Conisbee said in a statement.

"This will be a key issue for borrowers this year, especially first home buyers and investors, with access to cheap money becoming more difficult."

The index shows demand was weakest in Western Australia and the Northern Territory, and strongest in Tasmania, NSW and Victoria in December.

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