Lynn Levitt

Rate rises are not all bad

Mainstream news reporters love to tell how bad things are when property prices fall or interest rates rise. But as always, there is two ways of looking at it. When interest rates rise, the economy is improving. Inflation needs to be kept in check so the Reserve Bank raises interest rates. The good news for investors is two-fold.Firstly, improving economic conditions and a growing housing market mean capital growth. Also as rates rise, rents usually rise too giving investors a cushioning against the increased payments.Secondly, interest payments are tax deductible for investors so interest rates have much less effect on investors than owner occupiers. In fact, with tax deductions and increasing rents, it is safe to say the effect of rate rises is next to nothing. The only times investors will feel the pinch is if they have very little taxable income and therefore will not enjoy the full tax deductible breaks of a negatively-geared property. Also when a property has a very low yield and rents are only a small portion of the interest payment, this can cause interest rate movements to be of greater affect. Speak to a wealth coach to find ways to minimise rate rise effects.