THE axing of the popular first home buyer bonus is expected to impact on new home sales in Melbourne's growth corridors almost immediately.

It will come at a cost to first home buyers who will have to save up to $19,500 more in downpayments.

Treasurer Kim Wells yesterday cut the state-funded bonus for first home buyers which gives up to $13,000 in rebates to city buyers plus another $6500 for regional areas if they purchase a new dwelling under $600,000.

The move is expected to provide savings of $163 million next financial year, slightly more than the expected budget surplus of $155 million.

Housing industry groups reacted angrily to the decision yesterday not to extend the bonus beyond June, slamming the change as ''short-sighted'' after a recent significant slowdown in new home sales across Victoria. ''The state government is running the risk of undoing all the inroads we have made over the last few years in alleviating Victoria's housing shortage,'' Housing Industry Association Victorian director Gil King said.