Low rates but first home buyers cautious Demand for home loans from first time buyers has sunk to the lowest level in eight and a half years, despite the benefits of lower mortgage rates. However, lower rates are having a positive effect in other parts of the building industry, by encouraging demand for loans for the construction and purchase of new dwellings. The proportion of first buyers among those taking up home loans in December was just 14.9 per cent, the smallest since June 2004, Australian Bureau of Statistics (ABS) data shows. "The decline in first home buyers that continued in December is a concern, given the various incentives across several states to entice them into the market," Master Builders Australia chief economist Peter Jones said in a statement on Monday. With consumers still reluctant to commit to large investments, the Reserve Bank should give urgent consideration to a rate cut at its March board meeting. Overall, mortgage demand fell for a third straight month, declining 1.5 per cent in December to 45,335 loans. However, loans for construction rose 1.2 per cent and those for the purchase of new homes rose 1.9 per cent. The Reserve Bank of Australia (RBA) has identified home building as one of the sectors the economy will need to lean on to maintain overall growth, once the mining investment boom peaks toward the end of this year. But Macquarie Research senior economist Brian Redican said the ABS figures didn't support that expectation. "More than a year after the RBA commenced its current rate cutting cycle ... there are still few signs that those rate cuts have gained traction," he said in a client note. The central bank cut the cash rate by 25 basis points in December to three per cent, its lowest level since the 2008-2009 global financial crisis. It has made 175 basis points worth of reduction since November 2011. "The RBA will have to continue cutting rates if it still believes that stronger housing construction can help fill the growth hole left once mining investment stops rising," Mr Redican said. At this stage, financial markets point to a less than a 50/50 chance of a rate reduction to 2.75 per cent at the central bank's March board meeting. In its quarterly monetary policy statement on Friday, the RBA said given the subdued outlook for inflation, there was scope to ease interest rates further if necessary, to support demand.