A Property blog by Paul Bennion.
The recent decision by the major banks to increase lending costs for property investors will have a negative impact on their cash flow during a time when rental yields are weakening.
Westpac was the latest big bank to announce rises in interest rates for investor loans during the past week.
It announced it will raise the standard variable rate on residential investor loans by 27 basis points to 5.75 per cent, effective from 10 August for new customers and from 25 September for existing customers.
Westpac’s fixed rates on investor home loans will also increase, rising by up to 30 basis points, while fixed rates for owner-occupiers will decrease by the same margin.
Westpac is the last of the big four banks to announce an increase to its investor rates, NAB, Commonwealth Bank and ANZ announcing similar changes late last month.
Even regional banks have increased their interest rates for investors with Bank of Queensland (BOQ) for example, also announced it will increase its standard variable rate for residentially-secured investor home loans by 29 basis points, effective from 10 August
The capacity for investors to raise their weekly rents to meet these extra interest rate repayments is limited due to a softening in the rental market as more new homes are being constructed.
With rental yields in major capital cities now below 4%, these increases in borrowing costs underline the need for investor to maximize their cash flow.
Property investors will now be forced to examine other ways of boosting their cash flow over the coming year if banks choose to raise interest rates for investment loans even further during the coming year such as tax depreciation.
It is critical that property investors boot their income by ensuring that they claim all their legitimate tax benefits relating to property investment such as depreciation allowances.
It is estimated that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Investors fail to understand that the tax benefits from depreciation can be just as important as rental income and that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property. Investors fail to understand that the tax benefits from depreciation can be just as important as rental income.
Property investors who have a portfolio of investment properties should also realise that they can claim tax depreciation benefits retrospectively if they have not done so in the past. DEPPRO has been able to assist property investors who have several investment properties achieve tax benefits of over $100,000 by claiming depreciation allowances for previous financial years.
While tax depreciation benefits are most generous for new properties, older properties can also qualify for significant tax depreciation benefits.
For example, a property that is more than 50 years of age could still qualify for thousands of dollars each year in tax depreciation benefits for the owner.
Anyone who has purchased an older property for investment purposes should therefore carefully consider the significant taxation benefits that can be achieved before beginning any renovation work.