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HOME loan interest rates have gone up again in New Zealand and the major banks, Westpac and ASB Bank, have lifted floating mortgage interest rates.
More rises are expected in a further shock to home owners and investors.
Westpac moved its variable lending rate up from 7.5 per cent to 7.75 per cent. It said the rise added $24.50 to a monthly payment on a $150,000 mortgage on a 25-year term.
ASB increased its floating rate to 7.75 per cent. Some economists expected another rate rise by the central bank soon, which would likely push floating mortgage rates to 8 per cent.
Smaller bank HSBC also lifted its floating rate to 7.7 per cent.
Westpac has also just lifted rates slightly for fixed terms from six months to two years.
The 'People's Bank' Kiwibank also lifted six-month and one-year fixed rates but kept its floating rate at 6.95 per cent, well below the big banks.
In spite of the interest rate increase, many investments in residential property are likely to cost more than they return in rents during the next 20 years, ABN AMRO Craigs warns.
Strategist Frank Jasper said rental yields have dropped so low that the cash required to finance debt and cover other costs such as rates and insurance now outweighed any cash an owner would get back from rent.
That would leave homeowners dependent on capital gains to make any return from their investment.
But ABN AMRO Craigs believed the recent level of capital gains, enjoyed by residential property owners was unsustainable.
"Unfortunately, anecdotal evidence Suggests that some properly investors are wildly over-optimistic about the future," Mr Jasper said. Median house prices rose 19.3 per cent during the year to December 2003, in a boom fuelled by low interest rates, high real wage growth and a favourable taxation structure.
In contrast, Mr Jasper forecast prospective returns would be mid-to-high single-digit figures, based on "normal" assumptions of expected rental growth and capital gains.
He said the boom in house prices had changed the economics of home ownership.
Although investors would always know of someone who had a residential property success story, basic economics would win in the end. Investments that generate negative cashflow invariably trip investors up.