‘Tax man’ to offset investor rate hikes

In a market update over the weekend, AMP Capital chief economist Shane Oliver commented on the fresh round of mortgage rate hikes last week, noting that cuts had also been made for owner-occupiers paying principle and interest.

“The drip feed of bank rate hikes has continued but it’s worth putting this in perspective,” Mr Oliver said.

“Reflecting regulatory pressure and banks managing their risks the rate hikes have been for investors and more recently for interest-only (IO) borrowers.

“While the hike in investor and interest only rates (of around 0.3 per cent for investor P&I loans, 0.75 per cent for investor IO loans and 0.5 per cent for owner-occupier IO loans since November) are a dampener, they are modest compared to past rate hiking cycles, investors can get up to half of it back from the tax man and nearly 80 per cent of owner-occupiers are on principle and interest loans and many of them have seen a small rate cut over the last week.”

The main uncertainty relates to the impact on interest-only owner-occupiers, Mr Oliver said, “but, of course, if there is a problem there in terms of repayments as they move across to P&I that threatens overall economic growth, the RBA can simply offset the increase in mortgage costs by cutting the cash rate again (and yes – for owner-occupiers it’s likely the banks would pass it on)”.

[Related: Rate hikes driving home loan arrears]