BORROWERS Mortgage Commentary 08 / 2011
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Issue 2011 / 8   20 May 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 20 May 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.65 (unchanged)
1 year swap rate    2.82 (down from 2.85)
3 year swap rate    3.75 (down from 3.86)
10 year bond rate   5.11 (down from 5.20)
Kiwi dollar         0.7915 (up from 0.7840) 

NZ Budget – What Does It Mean for Interest Rates?
Before the budget was released, ratings agency Standard and Poor’s, were suggesting that, unless New Zealand made progress towards getting the deficit sorted, a ratings downgrade was likely.  This would have had the effect of pushing up interest rates for the Crown, and New Zealand banks and borrowers.  The English budget has a return to surplus a year earlier than expected, and has New Zealand back in the black by the 2014/15 financial year.  Standard and Poor's commented after the budget that it would not change New Zealand's credit rating, as long as the outlook for borrowing and the deficit did not worsen.  So long as we remain on track, we expect interest rates to remain at their current lows.  This is good news for borrowers. 

Australian Budget
This week was our budget but last week Australia had theirs.  One of the things that came out of their budget was that Australia is one of the very few OECD countries, may be the only one, to emerge from the global financial crisis with the Government accounts in reasonably good shape. Their budget put an importance on growing the economy, reducing unemployment and bringing the Government back into surplus by 2014 and 2015. Their Government has put an emphasis on infrastructure development (road, rail and ports) by allocating $36 billion to this area. Overall, still a prudent budget, showing that Australia is still the “lucky country”. 

Housing Market
According to the Real Estate Institute of New Zealand, April was a reasonable month for their industry. There were 4,987 unconditional sales reported and the median price for the country was $360,000, down from $365,000 in March, but up by $4,000 on April last year. In Auckland the median price is $479,500. Houses are selling more quickly, particularly in Auckland. The time to sell there is 34 days, compared with 41 days for the rest of the country. Some agents in Auckland are saying there is a shortage of stock, a problem not seen since the last housing boom of 2005-7. 

Are Houses Over-priced in this Country?
Over the past ten years, various articles have been written by the International Monetary Fund (IMF) claiming that houses in this country are still 15 – 20% over valued. The latest report on New Zealand is claiming the same. The question is, are they correct? We think not. House prices over the past three years have had ample time to correct. We have had the global financial crisis and this has led to one of the worse recessions since the 1930’s, as well as higher than usual unemployment. Houses prices have eased slightly - maybe 5% across the country, but have held up reasonably well. The IMF uses various financial models to come to their conclusions. In reality this is not happening.  We believe, and a number in the real estate industry do as well, that prices have probably bottomed in the main centres and in fact, in Auckland, they may start appreciating again shortly.

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.