DEMAND for home loans dived in January after three official interest rate increases and the removal of the federal government's generous first homeowners' grant, a mortgage broker says.

Loan Market Group says its home loan approvals have dropped by 40 per cent from a peak in 2009 after the company recorded its quietest month since 2006 in January.

"The three successive rate rises in the final three months of 2009 definitely had an impact on homebuyers and we didn’t see the need for the RBA to put rates up this month," the group’s chief operating officer Dean Rushton said in statement.

"There is no doubt that the removal of government stimulus is having an impact on the market."

The government’s increased first homebuyers’ grant ended on December 31, returning to $7,000.

This week the Reserve Bank of Australia (RBA) kept the cash rate at 3.75 per cent when most economists had expected a further 25 basis point increase.

Mr Rushton said that while there is still a possibility of rates increasing in March, he didn’t see the need for a big rise in the cash rate over the course of the year as it could undermine confidence in the Australian economy.

He said another concern for consumers, and a factor in the RBA holding fire this month, was major banks breaking ranks from the interest rate moves of the central bank.

"Major banks are no longer moving in line with the RBA, which is a development of concern to mortgage holders," Mr Rushton said.

Official home lending data for December are released next Wednesday, while January outcomes will be issued on March 10.

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