INTEREST RATES - WHERE ARE THEY GOING

Many economists are predicting that the reserve bank will cut official interest rates below 3% by Easter 2009.

It will be the lowest interest rate this country has seen in over 48 years. (Rates were as low as 2.9% in 1960)

Interest rates have already dropped from 7.25% to 5.25% in 3 months - so such a massive drop should put some spark back into the property market.

Consider these numbers:

A Home Loan of $250,000 in June 2008 at roughly 8.8% was costing the $476 week.

In 2009 that same home loan could be down as low as 5% and would now cost $337 week.

That is a savings of $139 week.

Affordability is going to improve dramatically for people. And that's a good thing.

Loans Reviewed

Across Australia mortgage providers are assessing the types of loans they provide to people. No longer will people be able to easily access "No Deposit" home loan products.

In fact the banks are positioning themselves around the 80% mark for home loans without mortgage insurance and up to 95% where mortgage insurance is purchased.

ANZ recently announced they would only provide loans up to 90% of a property value.

So whilst the Government has tried to kick start the property market with a doubling of the first home owners grant - a tightening in policy by Banks can hamper that strategy.

For instance - if a first home buyer has 10,000 cash plus the first home buyers grant of $14,000 they would effectively have $24,000 to contribute.

If they chose ANZ as their bank they would only be able to purchase a property to the value of $240,000.

And that is where the issue lies - the First Home Buyers Grant doesn't do enough for a First Home Buyer to meet the tougher lending criteria of the Banks.

Catch 22.