The decline in lending for investments home loans is "is primarily a decrease in investor demand given falling housing prices, more than the impact of tighter lending conditions," Guy Debelle, deputy governor of the Reserve Bank said yesterday."Competition for high-quality borrowers with standard loan applications has remained strong. In the end, it is difficult to separate the effect of demand and supply, but this strong competition suggests there is more of a demand than a supply story."We are seeing a number of borrowers taking advantage of this competition by refinancing to lower rates. This, along with continued switching from interest only to principal and interest loans, amounts to a reduction in variable mortgage rates paid of around a basis point per month. "There is still plenty of scope for more of this to occur, given that the interest rate on a new loan is some 30 basis points below the average outstanding rate for owner-occupiers."Debelle then skirted around the material now subject to an ACCC inquiry aimed at major banks and their pricing of back book loans."Following the recent 75 basis point reduction in the cash rate, on average, variable mortgage rates have declined by around 60 basis points," he said."Interest rates are historically low. Will we see a material increase in borrowing as a result? "While turnover in the housing market remains low, credit growth is likely to remain low, even as prices pick up. Households may be more conservative in their willingness to borrow given low income growth. Lenders are applying tighter standards than in the past. Both of these may well combine to result in a more muted pick-up in lending than in the past."Loan approvals have begun to rise but we have yet to see this flow through to a pick-up in housing credit growth, which has remained at historically low rates for both owner-occupiers and particularly investors. "One issue that we are closely monitoring is the extent to which households choose to take advantage of lower interest rates to pay down their mortgages faster. This would be evident in an increase in loan approvals that is not accompanied by an increase in credit growth."