Fears of bust as property runs hot RECORD low interest rates are overheating key inner-city property markets, prompting experts to warn of dangerous boom-time conditions as lenders fight for a greater slice of the mortgage market. McGrath Real Estate founder John McGrath yesterday said the pace of recovery in some property markets, particularly inner-city Sydney, was a concern and could lead to trouble. While noting some markets, including areas of Queensland, remained well below peaks, he said Sydney was "red hot" and the sweet spot was homes up to $1.5 million within 10km of capital cities. "I haven't seen it this hot since the last real estate boom and I'm not calling this a real estate boom, but I think if the pressure kept going at this level . . . we're heading for trouble," he said. A bit of a growth spurt is a natural and welcome and healthy thing, it's bringing confidence in, but one would hope and expect that will settle into a more sustainable 5 to 8 per cent growth over a longer period. As the Reserve Bank cuts rates to record levels and demand from investors soars, the major banks have started brawling for a slice of the $1.3 trillion mortgage market, ahead of a likely bumper spring sales frenzy. The National Australia Bank yesterday fired the latest shot, offering $1000 cash to customers who re-finance their home loan with NAB before September 30. It came after Commonwealth Bank last week pledged to beat the one to five-year advertised fixed rates offered by the ANZ, NAB and Westpac for the next seven weeks. Westpac last week hit back in the variable rate space, cutting by more than the Reserve Bank's 25-basis-point cut after three years of losing market share. NAB noted the coming "busy spring period for real estate" and was discounting its mortgage insurance by 15 per cent and waiving its $600 application fee. It comes as evidence builds that the RBA's cuts to the cash rate to 2.5 per cent are firing up the property market. Housing finance data yesterday showed a 13.3 per cent rally over the year. "In spring you are going to see all the anecdotal and hard data evidence of a genuine residential property boom being under way in east coast Australia," Bell Potter senior stockbroker Charlie Aitken said yesterday. CBA chief executive Ian Narev played down concerns about an emerging property bubble, saying he was not losing sleep worrying about the "direct and indirect consequences" of the RBA's policy settings. But he conceded lenders must be "very, very careful about just making hay when the sun shines." "Everybody is saying there are advantages of a lower interest rate environment, there are risks, and make sure we are well aware of the whole spectrum," he said. It's always nice to pay lower interest rates than higher, but interest rates in an economy on a downward cycle are there for a reason. History will tell you that when the interest rate cycle starts to rise again . . . (banks must ensure) people on standard variable rates are going to be able to pay what they need to pay. So sometimes we're seen as the party poopers, but actually it's just that we need to be driving these things for the long term.