BORROWERS Mortgage Commentary 14 / 2011
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Issue 2011 / 14 12 August 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 (9 am on 12 August 2011) the money markets were at the following levels:
Official cash rate 2.50% (unchanged)
90 day bill rate 2.86 (down from 2.87)
1 year swap rate 3.10 (down from 3.35)
3 year swap rate 3.68 (down from 4.10)
10 year bond rate 4.49 (down from 5.02)
Kiwi dollar 0.8310 (down from 0.8711)

The Latest Financial Crisis
The 2008 global financial crisis was all about individuals and companies (including banks) being too highly geared. Some went away, i.e. due to bankruptcy and the others recapitalised. As a result, many companies and individuals are in better positions, due to lower gearing and their holding more cash, than they were pre 2008. In many cases, individuals are continuing to cut back their expenditure. This is one reason why the retail sector is sluggish.
The latest crisis is all about likely defaults of governments. Last week the USA shocked the world and was downgraded by one rating agency. Similarly there are concerns about Italy and Spain. This is much harder to fix as, unlike companies, governments are unable to call on their shareholders for more capital. They can resort to higher taxation but this would be unacceptable in most jurisdictions. Their only recourse is to cut expenditure on various services and this again is unpopular with the electorate. The reality is they have no other choices.

Mortgage Rate Outlook
Over the past few weeks a number of commentators have been suggesting that the Official Cash Rate (OCR) may rise as early as September and most certainly by December this year. The events of the last two weeks have certainly put a stop to any likelihood that rates will rise in the near term. Even before the recent events, we believe it was premature to talk about increasing rates. Our economy is really still in recession despite the official figures. Unemployment is still around 6%, youth unemployment is increasing at alarming rates and retailers are finding it a particularly difficult trading environment. Exporters are suffering with the high exchange rates. There is a strong argument that we should cut our rates further. Our OCR, at 2.5%, is still well above the USA, at a quarter of a percent, the UK at half a percent and the Eurozone at 1.5%. We are lower than Australia at 4.75% but they have a booming mining sector and we do not. The Reserve Bank should consider dropping the OCR now.

House Prices
Over the past year the median price for houses sold across the country has increased by 2.15% to $360,000 from $352,000. These are New Zealand wide figures and include the strong markets such as Auckland and the slower regional markets as well. What is interesting is that despite all the economic turmoil, house prices are holding up. The number of days it takes to sell a dwelling is about the same. In June last year it was 45 days and in June this year 44 days. Volumes being sold are starting to increase, which is positive. Last year we were looking at around 4,500 house sales per month - this year so far it is around 5,000 and some months it has exceeded this amount. This trend will continue as we are about to enter the more active time for house sales, spring and summer.

Short Term Finance is Available
Just a reminder - we have plenty of funding available through our finance company, General Finance Limited for short term bridging first and second mortgages. If you require short term finance, up to two years, we welcome your enquiries. We are accepting deposits as well. Our deposit rates are between 8 and 9%. This is well above the rates being offered for term deposits at the trading banks.

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.