Boom time ... investors will get a bigger tax deduction from the banks’ latest rate rise. Source: Supplied

EXCLUSIVE: Banks’ investment home loan rate hikes will deliver a $400 million-plus hit to the Federal Budget.

State governments will feel pain too, experts say.

Three of the big four lenders will lift variable rates on investment loans today by at least 0.27 percentage points.

With investors are able to claim tax deductions on interest they pay, a News Corp Australia analysis of the latest Australian Taxation Office data has found the rate increase will deliver landlords at least $1.1 billion worth of extra deductions.

That translates to about $400 million of additional tax refunds.

Tougher conditions ... experts say state revenue from stamp duty will drop. Source: Supplied

Investors are still out of pocket from the rate rise because they only get back a percentage of their losses.

Other knock-on effects are also become evident.

Experts say state revenue from stamp duty and other property taxes will drop.

Property businesses are already seeing a pullback, and even bank share prices have slumped amid tougher market conditions.

Real estate author and university lecturer Peter Koulizos said a slowdown in investment activity would hit tax receipts harder than the interest rate rise would, and he was already hearing of investors taking a wait-and-see approach.

CHECK IT OUT: Compare investment loan rates here

Cashing in ... the rate increase will deliver landlords at least $1.1 billion worth of extra deductions. Source: Supplied

“State governments are going to miss out because there won’t be as many transactions,” he said.

“We are not just talking income tax here — there’s other taxes and duties that will be impacted.”

Mortgage Choice spokeswoman Jessica Darnbrough said home loan approval data showed investor demand fell in July.

“Hearsay evidence from our mortgage brokers suggests that many investors are taking a backward step, even if they have gotten to the point of pre-approval,” she said.

ATO figures show interest on loans is the biggest single tax deduction for investors. It totalled $22.3 billion in 2012-13, the latest year of available data, and is believed to have climbed amid the property boom in recent years.

Not so good ... Mortgage Choice spokeswoman Jessica Darnbrough says home loan approval data shows investor demand fell in July. Source: Supplied

Deakin University tax lecturer Adrian Raftery said the ATO would lose more from investor deductions than it gained from any corresponding rise in bank profits.

“In 1990 investor loans were 2 per cent higher than owner occupier loans, and we seem to be heading towards that again,” he said.

Dr Raftery said Aussie Home Loans founder John Symond brought equality to investor and owner-occupier mortgage rates in the mid-1990s.

Mr Symond told a federal parliamentary inquiry late last week that tougher lending restrictions for Australians might make it easier for foreign investors to “come in and gobble up what they want”.

“What about the 20 per cent or 25 per cent, in some areas 30 per cent, of foreign buyers who predominantly don’t borrow here?” he said.

Original article was published in News.com.au on 9 August 2015

http://www.news.com.au/finance/money/bank-investment-loan-rate-hikes-to-cost-federal-budget-400m-plus/story-e6frfmdr-1227476546604