More landlords face making a loss on rentals as interest rates rise, Deloitte says
Sharp interest rate increases, combined with the phase-out of mortgage interest deductibility, are likely to leave more rentals losing money as landlords find rent payments no longer cover expenses and tax bills, Deloitte analysis shows.
Deloitte partner Robyn Walker says if home loan rates hit 5 per cent (which experts predict will happen within a couple of years) it will not take long for a typical rental to see the small profit made from rent disappear, and for it to start running at a loss.
A separate analysis by property data company Valocity shows recent investors could find their tax bills more than $2700 higher this year compared to identical investors who bought pre-rule change.
The insights from Deloitte and Valocity start to fill a gap left by the Government and Inland Revenue (IR) about what effect the phase-out of mortgage deductibility will have on investors.
As of this year, the amount of home loan interest that can be claimed as an expense on rental properties, reducing the tax bill to be paid, will drop by 25 per cent a year.