We’re halfway through 2021 and certainly in a very different place to the one we were in just 12 months ago.

In June we saw the 143-page document released which gives further insight into the proposed tax changes for investment properties (both in regard to bright-line and interest limitations) and how this may be implemented. It will be interesting to see how this plays out, and what sort of distortions this creates in the property market.

Mortgage rates have remained low, but we are certainly seeing some upward interest rate movement, particularly in the longer-term fixed rates. The three to five-year loan terms have trended upward and in many cases are at least 0.3% higher than they were not too long ago. We have seen for example, the five-year rate with many banks go from 2.99% earlier this year, to 3.69% in many instances.

These costs with a mortgage of $1 million are huge; a 0.60% increase in interest costs is the equivalent of $6,000 per year, or $30,000 over the five-year term. This number ends up costing borrowers more if their property is an investment, assuming the proposed interest deductibility changes.

It is also worthwhile pointing out that the one-year rate has seemed to trend down with many lenders being happy to match the 2.19% special rate.

Borrowers have mostly tended to focus on the one-year rate due to it being the lowest the bank has offered, and over recent years in a downward trending interest rate environment, this has proven worthwhile, however in the coming years it may not be as useful if interest rates trend upwards.

We have seen some of these changes both in interest rates and in proposed tax policy influence property investors to either put things on hold, or even explore the new-build market for purchasing further investments (to avoid the hassle of getting up to speed with Healthy Homes, and also due to the current tax landscape).

Floating rates haven’t moved for the most part, with the median rate being 4.55% across main-banks. Of course, this doesn’t include ASB and Sovereign’s specific construction product “Back My Build” product which is at 1.79%. We have also heard murmurs in the industry that soon some other bank lenders may follow with their own version of the above.

I reiterate what I said recently, for those people with existing investment properties which may be subject to new tax changes, you will want to discuss both with your accountant, and your mortgage adviser when looking at fixed rate advice. In some cases, paying for more certainty now on your investments will yield better results, but you want to have an understanding of the cash-flow effects these changes will have prior to fixing long term, in the event that you decide instead to sell a property.