Highlights

  • Markets now see a November rate rise as likely, with odds climbing from about 60% to nearly 90%.
  • On a $600,000 interest-only loan at 6.00%, a 0.25-point rise adds $1,500 a year in interest.
  • Tax deductions recover only part of the extra cost: about $480 at a 32% marginal rate, or $585 at 39%.
  • Investors with ongoing rental losses can ask the ATO to vary PAYG withholding and bring part of the benefit forward.

What does a 0.25 percentage point rate rise actually cost an investor once the tax system takes its share? After a 4.3% inflation reading, markets are leaning towards a November hike, with the Reserve Bank due to decide on Tuesday 3 November. For a negatively geared landlord, the rise means more interest and a bigger deduction, but the deduction covers only part of the bill.

Why the odds jumped

The ABS reported annual CPI at 4.3% in the year to September, up from 4.0% in August, with a trimmed mean of 3.6%. Housing led the rise at 5.2%.

ANZ said the data "cements the case" for a 25 basis point hike. CBA moved from forecasting a hold to a hike, calling it "an insurance hike", and UBS expects the cash rate to reach 4.85%. Westpac's Luci Ellis expects a rise but not a run of them. These are forecasts, not certainties.

How interest deductions work

Interest on money borrowed to buy a rental property is generally deductible while the property is rented or genuinely available for rent. A property is negatively geared when deductible costs exceed rental income, and the net loss can reduce tax on other income such as wages. A rate rise is therefore partly cushioned, with the cushion set by the investor's marginal rate.

Worked example: a 0.25-point rise

Hypothetical: an investor has a $600,000 interest-only loan at 6.00% on a property earning $550 a week, or $28,600 a year, with $7,000 of other deductible costs. Interest is $36,000, so the rental loss is $14,400. Passed on in full, a 0.25-point rise lifts interest to $37,500 and the loss to $15,900.

Investor A earns $120,000 and faces a 32% marginal rate including the Medicare levy. The extra deduction saves about $480, leaving an after-tax cost near $1,020 a year. Investor B earns $160,000 and faces 39%, saving about $585 and bearing roughly $915.

The maths scales with the loan. Over a full year, 0.25 points adds about $1,000 on a $400,000 loan, $2,000 on $800,000 and $2,500 on $1 million, with savings at 32% of about $320, $640 and $800. The illustration ignores depreciation and timing.

Cash flow and withholding

Many investors claim rental losses only at lodgment, leaving a gap during the year. Those with ongoing losses can ask the ATO to vary the PAYG tax withheld from their pay. If the loss proves smaller than estimated, tax may be owing at lodgment.

The 2027 twist

The ATO says negative gearing is limited to new builds from 1 July 2027 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, eight months after this rate decision. Anyone who owned the example property before the 7:30pm AEST cut-off on 12 May 2026 would generally keep the deduction. For established property bought later, a rising interest bill would no longer be offset against wages in the same way.

The same laws replace the 50% CGT discount with indexation plus a 30% minimum tax on gains accruing after 1 July 2027. The ATO has not yet explained the calculation.

Housing prices and the RBA

Cotality's index shows national values down 1.1% in September, the median 5.2% below the March 2026 peak. At Senate Estimates on Wednesday, RBA Governor Michele Bullock said: "Housing prices are around 50% higher than they were in early 2020." Westpac's Luci Ellis said the RBA is "relatively sanguine about the current downturn in the housing market". That suggests the RBA is focused more on inflation than on falling prices.

What to watch

The RBA board meeting begins Monday 2 November, with the decision and forecasts on Tuesday 3 November. Then watch how fast lenders pass on any change to variable rates. A registered tax agent can help with loan terms and income specifics.