BORROWERS Mortgage Commentary 10 / 2012
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Issue 2012 / 10   22 June 2012

Welcome to the tenth 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 (9 am on 22 June 2012) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.65 (up from 2.56)
1 year swap rate    2.64 (up from 2.45)
3 year swap rate    2.89 (up from 2.68)
10 year bond rate   3.29 (up from 3.24)
Kiwi dollar         0.7967 (up from 0.7704)

Official Cash Rate
Last week the Reserve Bank reviewed the OCR. Predictably there was no change. It remains at 2.50%. Similarly there were no indications as when it may increase. The OCR is unable to go up until growth returns to our economy and unemployment eases. We did pick up that if things get worse in Europe, then the Reserve Bank may actually cut interest rates. Unlike many central banks around the globe, our one still has the ability to ease rates further. Any cut in wholesale rates would likely see further easing of mortgage rates.

Finance Company Debacle in Perspective
When the global financial crisis hit this country in 2008, among the casualties were a number of finance companies. For those affected it was particularly serious. However, it needs to be put in prospective.  It is estimated that around $7.0 billion has been lost by investors. A similar amount has been lost by investors in the publicly listed company, Telecom. This company has lost around $7 billion in market capitalisation, with its share price having dropped from around $10 to $2, over past ten years. During the 1987 share market crash, it is estimated that the New Zealand share market dropped by around $30 billion. Well known companies such as Chase and Equiticorp disappeared for ever. So much was lost, that some investors have never returned to the market.  Finance companies have been given a lot of media attention but it would be appropriate for some of the other businesses and sectors, where investors have lost money, to be discussed.

Property Markets
Reviewing the latest property statistics from Quotable Value, to the end of May, reveals some positive developments.  Property prices by and large are starting to recover in the main centres. In the past 12 months the average sales price across New Zealand has increased by 3.9% to $411,788. The Auckland region has increased by 5.7% to $545,577. Christchurch, which is a special case, increased by 5.4% to $379,501. Wellington increased by 0.8% and Dunedin by 2.4%. The only centres to record negative price changes were Rotorua with a drop of 1.2% and Napier with a drop of 0.8%.

Update on Unit Titles
The Unit Titles Act 2011 has replaces the previous Unit Titles Act 1972. The new act introduces a number of new rules concerning such things as having long term maintenance plans in place, and having operating rules for example. As these new rules take time to implement, a transitional period has been put in place, but this ends on 1 October 2012.  This is not far away. Those who own apartments or flats which are part of a body corporate should be talking to their body corporate manager to ensure that they are meeting their new obligations.

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.