The number of home loans surged in September after two straight months of decline, as first home buyers flocked to the market ahead of the October 1 roll back of the first home owner grant.

But the reprieve may be temporary, with economists expecting a sharp pull-back in the market in October and November as potential home owners grapple with rising interest rates.

Australian housing finance commitments for owner-occupied housing rose 5.1 per cent in September, seasonally adjusted, to 65,505 the Australian Bureau of Statistics (ABS) said on Monday.

This compares to a 1.9 per cent fall in August and 1.6 per cent fall in July. The September figure also beat market expectations of a three per cent rise.

Total housing finance by value was also strong, rising by 4.8 per cent in September, seasonally adjusted, to $23.847 billion - it’s highest level since June 2007 when it reached a record $24.531 billion.

“It does look very much like a last hurrah for first home buyers getting into the market,” Nomura Australia chief economists Stephen Roberts said.

“The owner occupied part of it rose quite strongly after falling for the last two months.

“But as we look out over the next couple of months, two interest rate increases and the stepping down of the first home buyer grant, there’s a real chance its going to pull back. I would expect a reasonably sharp decline in October and November.”

The number of loans taken out for the construction of homes shot up eight per cent to 7,221, it’s highest since December 1994.

Loans for the purchase of new homes fell 0.6 per cent to 2,745 while loans for established homes grew five per cent to 55,538.

In September base interest rates were at 49-year-lows of three per cent, with variable mortgage rates around 5.80 per cent.

On October 6, the Reserve Bank of Australia (RBA) took the cash interest rate to 3.25 in what was the bank’s first rate rise in 19 months.

It was followed by another 25 basis point rise in November to leave the cash rate at 3.50 per cent.

Until September 30 this year, people who entered a contract to build a new home were eligible for a $21,000 first home buyers grant from the federal government.

That grant was scaled down to $10,500 for existing homes and $14,000 new homes.

It is due to be scaled back further to $7000 for both new and established homes on January 1, 2010.

“Since last October, when the grant was first expanded, there has been a significant rise in the value of home loans for owner-occupiers,” JP Morgan economist Helen Kevans said in a research note.

“This had appeared to be levelling out in recent months, but a last minute rush of first home buyers attempting to take advantage of the fully expanded grant prompted an up-tick in owner-occupier housing finance in September.”

AAP