KEY POINTS:
Wealthy Auckland property investors have rebuffed Reserve Bank Governor Alan Bollard yesterday, saying his interest rate increase was "like water off a duck's back".
Dr Bollard lifted his bank's official cash rate by 0.25 per cent - and within hours, Westpac increased its floating mortgage rate by the
same amount, to 9.8 per cent.
Its move adds about $17 a month to the cost of a $100,000 mortgage.
Dr Bollard also indicated that tighter tax rules on investment properties were being considered, and hinted at a further rate rise as early as next month to rein in the housing market.
But Auckland investors surveyed by real estate consultant and mortgage broker Kieran Trass said the new rates would have little effect because they had fixed long-term mortgages.
Over the last few days, Mr Trass surveyed 5000 landlords who each owed banks more than $500,000 and had portfolios worth $1 million-plus.
Their houses and flats were mostly in Auckland's low and middle-income suburbs.
Mr Trass said: "As the survey respondents have indicated, increasing floating interest rates is not likely to alter their decision to buy more property this year.
"It's unlikely to have much if any effect on their overall portfolio funding costs."
Even if rates went up by 2 per cent, the investors said they would still buy property because rising house prices more than offset the mortgage costs.
Mr Trass said 48.5 per cent of the investors said they would buy more property, even if rates rose by an unlikely 2 per cent.
Dr Bollard indicated that his rate increase was aimed at property investors.
A mortgage levy proposed by Deputy Prime Minister Michael Cullen clearly did not enjoy broad political support and was no longer an option, but other measures were being worked on.
They include blocking investment property owners' ability to exploit "negative gearing".
Landlords' expenses, including interest, maintenance and depreciation, can exceed the rent they get, but those losses can be used to reduce their tax liability on other income.
That has made rental housing an attractive option and helped push up house prices.
A law change would be required to eliminate "negative gearing".
Also under consideration is for the Inland Revenue Department to be more aggressive in enforcing the law requiring active traders in property to be taxed on their capital gains.
Dr Bollard also fired a shot at banks, saying he was looking at raising the amount of capital they would need to back their housing loans. That would increase the costs of borrowing.
National's finance spokesman, Bill English, gave the governor a grilling when he appeared before Parliament's finance and expenditure select committee hours after lifting the rate.
"There is no possibility you will have an alternative [to the official cash rate] for several years, and this is pointless speculation," he said. "It is hard to believe you will come up with anything that will make any difference."
It was none of Dr Bollard's business if "mums and dads" took on more debt than he thought wise, Mr English said.
"Is there a problem significant enough to warrant this speculation and to risk undermining the credibility of the tool you already have?
Dr Bollard replied that interest rates had been working but not to the extent the bank would like.
Conditions in international markets had limited how much he could lift interest rates without "hugely" hurting exporters and firms competing with imports.
Rate moves
0.25% Yesterday's increase
9.8% Westpac's new floating rate
7.7% Average rate for homeowners on fixed mortgages