BORROWERS Mortgage Commentary 05 / 2011
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Issue 2011 / 5   8 April 2011

Welcome to the first fortnightly General Finance Mortgage Commentary for 2011.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general.  Previous issues of this commentary can be found on our website

The Money Market
This morning (9am on 8 April 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.65 (up from 2.63)
1 year swap rate    2.77 (up from 2.73)
3 year swap rate    3.85 (up from 3.73)
10 year bond rate   5.75 (up from 5.58)
Kiwi dollar         0.7787 (up from 0.7485) 

House Prices Nationwide
We seem to have a dual housing market emerging. New Zealand wide, house prices have fallen on average by $10,000 over the past three months and the median price is now $350,000. This is good news for those wanting to buy.  This median price fall, together with recent mortgage rate drops over the past month, has improved home affordability.  For those with houses, any decrease in house prices is not good but it does not really matter if you do not need to sell. It reflects the part of the cycle we are in. The opposite seems to be happening in Auckland. Rents have been rising, housing sales volumes have been improving and the average selling price has reached a new high of $581,000. We are seeing a flat market in all areas except Auckland. 

Consents Continue to Fall
Places such as Auckland require more houses, but fewer new ones are being built. For February (the latest figures available) 973 new building consents were issued, down by 29% on February the previous year. This can be explained by the current recession, with house construction being a more risky activity and home buyers, as a result, being more conservative. There is a shortage of finance as most finance companies have now gone.  A solution would be for the banks to take a more proactive stance in offering construction finance to those home owners wanting to build, rather than buy an existing property. This would greatly assist the building sector as well. 

Interest Rates in Australia
The current overnight cash rate in Australia is 4.75% compared with our 2.50%. Earlier this week the Reserve Bank of Australia reviewed their rates and kept them on hold for the fifth straight month. The reasons given were the slow recovery following the devastating floods in January, and the fact that inflation is unlikely to be an immediate threat due to the strong Australian dollar.  Currently the exchange rate is in Australia's favour with the US$ at $1.03.  This is well above our exchange rate with one NZ dollar buying 77 American cents. The Australian economy continues to be firm on the back of strong commodity prices. 

Tax Changes this Month
From the first of this month a number of tax changes take effect.  Company tax reduces from 30% down to 28%. Depreciation on building goes. Depreciation on chattels such as carpet and curtains remains. The rules on loss attributing qualifying companies (LAQC's), which have been popular with property investors, have changed. The new entity, the look through company (LTC) has more restrictions on it than the old LAQC's. There are GST changes on land deals.  These will be zero rated if the vendors are not paying GST. Again these changes are significant if you are a property investor or trader and now is the time to discuss the implications of these law changes with your accountant. 

Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the General Finance Limited Loan Administration Department.

As everyone's personal circumstances are different and the tax treatment of their affairs is always determined by their own circumstances, you should not act on any comments made in our Commentary without obtaining your own independent professional advice.

General Finance Limited is a Registered Financial Services Provider, with registration number  FSP8882.