Another rate cut likely next month as mortgage activity surges

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FALLING interest rates have sparked a surge in activity among home loan customers, who are likely to receive a second rate cut within weeks courtesy of the Reserve Bank of Australia.

Its February rate cut will flow through to most variable-rate mortgages from Friday, and economists now believe the RBA will cut again at its March 3 meeting, following last weeks poor employment data and ongoing economic worries.

Some economists are predicting even more cuts by the end of the year.

HISTORIC LOW: RBA cuts interest rate to 2.25 per cent

The rise in mortgage activity since the announcement of the first rate cut had been phenomenal, said Oracle Lending Solutions managing director Angelo Benedetti, who has noticed a 40 per cent spike in inquiries.

The lights turned on in a lot of peoples heads and the recent rate reduction has sparked them into being more aggressive in the purchase of property. Money is as cheap as it has been in 40 years, he said.

People are saying how much lower can they go? and real estate agents are getting a lot more offers. Its not just people wanting to save money its people saying now is a good time to buy and they are starting the pre-approval process.

Smartline Personal Mortgage Advisers manager Richard Bradshaw said interest was up strongly and people were looking at selling, buying, renovations and investment properties.

However, the poor employment figures could create a lot of fear, he said. At the moment theres a great level of activity but we might find in a couple of weeks people are sitting on their hands.

Economists have pencilled in a March rate cut because of weaker-than-expected economic conditions. RBA governor Glenn Stevens said on Friday that unemployment would peak higher than previously forecast.

AMP Capital chief economist Shane Oliver said Australias worst unemployment level in 13 years equalled more rate cuts on the way, while HSBC chief economist Paul Bloxham said borrowers should expect another rate cut in March.

BetaShares chief economist David Bassanese said he expected three more RBA cuts this year, taking the official interest rate from 2.25 per cent today to 1.5 per cent.

The RBA has demonstrated its concern with economic growth. It doesnt see much of an economic upturn and I think in the next few months it will continue to be disappointed and they will have to keep cutting, he said.

Mr Bassanese said even at 1.5 per cent Australias official rate would be lower than other major economies.

Europe and the United States and Japan are all effectively zero, so we still have a long way to go to match them.