BORROWERS Mortgage Commentary 05 / 2014
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Issue 2014 / 5   11 April 2014

Welcome to the fifth fortnightly General Finance Mortgage Commentary for 2014.  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 11 April 2014) the money markets were at the following levels:
Official cash rate    2.75% (unchanged)
90 day bill rate       3.20 (up from 3.12)
1 year swap rate    3.64 (up from 3.57)
3 year swap rate    4.35 (up from 4.29)
10 year bond rate   4.59 (down from 4.61)
NZ/US dollar      0.8720 (up from 0.8674) 

LVR Restrictions May Be Relaxed
After being introduced around six months ago, the loan to value ratios are having an impact on mortgage lending. These restrictions and the prospect of higher mortgage rates have reduced the number of first home buyers in the market.  We have always said that this is not a good policy, as we should be encouraging first home buyers into the market.  Most of these buyers are between 25-35 years of age, with many years working ahead of them.  Home ownership is part of most peoples’ superannuation, in this country. Having a freehold house in retirement, means you need less income on which to live, plus it does give you options about trading down to a less expensive property. Later on this year, the Reserve Bank may start to ease back on the loan to value restrictions.

Non-Residents Should Build
There are a number of non-residents of this country, who are interested in purchasing residential property.  This is, no doubt, having an effect on the supply and so some local people, particularly first home buyers, are missing out. The solution is to follow what has been adopted in Australia, Singapore and Hong Kong - that non residents can only purchase brand new properties. This has several advantages: it has a stimulatory effect on the construction industry, which will be able to employ more locals, plus it increases the supply of properties available. In the medium term, this may actually decrease rents. The other advantage is that the used market is only available to residents, which will include many first home buyers. They will, of course, have access to brand new properties as well. We should adopt this initiative.

Economy is Less Robust
There seems to be conflicting information about how well the economy is performing. Bank economists are all optimistic but we are seeing a slightly different story.  Sure Auckland is growing, and construction activity is occurring in Christchurch. Elsewhere, in most provincial areas, things are quieter and unemployment remains high. The recent fall in dairy prices will not assist these areas, and so house prices there are likely to remain flat.  If we are correct, this will be picked up by the Reserve Bank, and as a result there may be fewer interest rate rises than are currently anticipated. 

Low Docs are Okay
We are in the short term lending market, advancing up to 70% on most types of residential properties. A considerable portion of our lending is on the traditional type of low doc loans for up to a two year period. At the end of the term, most are either in a position to sell the property concerned or to go to a mainstream lender. This is still a most useful product to have available.   

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.