Rising interest rates and a smaller first home buyers grant contributed to an almost eight per cent fall in demand for new home loans in January.

The larger-than-expected fall in housing finance commitments surprised the big banks and could help convince the Reserve Bank of Australia (RBA) to spare borrowers another interest rate rise in April, economists say.

“The interest rate hikes and expiry of the additional government grant for first home buyers, has clearly taken some of the heat out of the property market,” CommSec economist Savanth Sebastian said.

“Over the last four months housing finance has slumped by over 22 per cent.”

Figures released by the Australian Bureau of Statistics (ABS) on Wednesday showed Australian housing finance commitments for owner-occupied housing fell 7.9 per cent in January, seasonally adjusted, to 51,056.

Economists had expected the number of owner-occupier housing finance commitments to have risen by 2.0 per cent in the month.

The fall in the owner occupier segment was a “surprise,” especially given the banks were all saying it would rise, Nomura Australia chief economist Stephen Roberts said.

“It tends to detract from an immediate interest rate rise,” mr Roberts said.

The RBA took the cash rate to four per cent from 3.75 per cent in early March.

Some market analysts expect the central bank to raise the cash rate again in April to 4.25 per cent.

The greatest drop in housing finance was in the new dwellings sector, which fell 13.2 per cent, the ABS figures showed.

This was a direct result of scaling back government stimulus programs like the first home buyers grant, mr Roberts said.

The ABS figures revealed the proportion of loans granted to first homebuyers dipped to 20.5 per cent compared to 21.0 per cent in December, eight months after a record peak of 28.5 per cent set last May.

The figures also showed a 3.9 per cent drop in loans for the construction of new dwellings.

On the upside, the investor group was the only segment not to retreat into negative territory, showing 0.9 per cent growth in the month to January.

An economist at financial markets research group 4Cast, Michael Turner, said the 7.9 per cent decline was due to first home buyers retreating from the market, as the temporary boost to the first home owner grant was wound back.

“It is not as though it was a massive change in policy – for purchases of established homes it only dropped from $10,500 to $7,000,” mr Turner said.

“That’s not huge, but it seems to have been enough, along with at least 75 basis points of interest rate rises.”

ANZ economists David Cannington and Alex Joiner said the number of approvals continued to come off with the January data showing another slowdown as the RBA tightened monetary policy further.

“The fall … was again led by first homebuyers, with numbers down almost 45 per cent since October 2009, seasonally adjusted,” they said.

Wednesday’s figures poured cold water on claims of a property bubble, Housing Industry Association (HIA) senior economist, mr Ben Phillips said.

“The removal of the federal governments first home buyer boost and increasing interest rates have clearly lowered activity in both the new and existing homes market,” mr Phillips said.