BORROWERS Mortgage Commentary 04 / 2012
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Issue 2012 / 4   31 March 2012

Welcome to the fourth fortnightly General Finance Mortgage Commentary for 2012.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general. 

The Money Market
This morning (9am on 31 March 2012) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.75 (unchanged)
1 year swap rate    2.83 (down from 2.85)
3 year swap rate    3.28 (down from 3.40)
10 year bond rate   4.17 (down from 4.22)
Kiwi dollar         0.8171 (up from 0.8106)

Housing Affordability Has Improved
For most of New Zealand, housing affordability is actually improving. Twenty to thirty years ago, you could purchase a house for three or four times your annual income. Now it is up to six or seven times. However, mortgage interest rates have fallen from 12-18%, in the mid 1980’s to the early 1990’s, to around 6% today. So servicing is in fact better. Today, there are a much wider range of fixed rate mortgages, which means you can fix for up to five years to ensure you have certainty with your outgoings. The only exception to this improvement in affordability is parts of Auckland, where dwelling prices have gone up much faster than people’s incomes and inflation.

House Prices in Auckland
Over the past twelve months Auckland city house prices have been firming. Will this cause the Reserve Bank to raise mortgage rates?  We believe the answer is clearly no. The burst of activity is fairly localised and confined to the inner suburbs (often with buyers chasing particular school zones). The Reserve Bank looks at the housing market from a national perspective.  In many other parts of the country, houses prices remain static. The Auckland activity may well be fairly short term - there is a genuine shortage of properties, but once prices have risen, more building starts are likely. We do not think that this will affect mortgage rates.

Trusts - An Update
Late last year there was an important change to gifting: gift duty was abolished. You can now gift your assets to a trust in one transaction.  Previously there was a gift duty free limit of $27,000 a year for a single person or $54,000 for a couple. These changes enable people to quickly and easily reorganise their business affairs. If you are planning to do this we strongly suggest that you obtain legal and accounting advice. This law change allows those no longer requiring their trust structures, to reverse their previous financial restructuring.  Now is a good time to review your financial structures to ensure that they are appropriate.

Wealth Spread in New Zealand
A recent study by Roy Morgan found that older New Zealanders (i.e. those over 55) have seen their net wealth increasing. This is due to two factors: most owned their own homes over the past decade when prices rose substantially and they are working longer. A decade ago this age group made up 14% of the working population - now they make up 23%. The recent rise in unemployment has affected the younger generation much more badly than the older people. Of their net worth, around 70% is the equity in their homes. This will change over the next decade as more people start contributing to KiwiSaver and their balances start to grow.

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.