Australian mortgages 'hit 4-year low'

The number of home loans being approved in Australia hit its lowest level since October 2004 in May as high interest rates "smothered" the property ambitions of many consumers, reports say.

According to new figures from the Australian Bureau of Statistics, 52,006 people secured home loans during the month, while the seasonally-adjusted growth in owner-occupied housing dropped by 7.9 per cent - far worse that the two per cent drop predicted by economists, news.com.au states.

However, the number of first-time buyer agreements rose to account for 17.3 per cent of all owner-occupied lending in May, up from 16.9 per cent in April.

Andrew Hanlan, a senior economist with bank Westpac, said interest rates were the main factor behind the continued slump in borrowing, which has seen new lending slide by 23 per cent in four months.

"There has been a substantial pullback in demand for housing finance, as a result of the Reserve Bank's tighter monetary policy," he said.

However, Mr Hanlan added that it would be "premature" to call for interest rates to be cut.

The site says the Reserve Bank has increased interest rates eight times during the past three years, with the most recent rises in February and March of this year.

Banks have added to the cost of borrowing, it adds, by increasing their own rates above the baseline rate. As a result, mortgage rates are now at their highest point since 1996.

According to JP Morgan, this has had a particularly sharp impact on housing finance because 80 per cent of all loans in Australia are variable rate deals.

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