BORROWERS Mortgage Commentary 07 / 2015
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Issue 2015 /7         15 May 2015

Welcome to the seventh fortnightly General Finance Mortgage Commentary for 2015.  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 15 May 2015) the money markets were at the following levels:
Official cash rate    3.50% (unchanged)
90 day bill rate       3.55 (down from 3.64)
1 year swap rate    3.41 (down from 3.53)
3 year swap rate    3.50 (down from 3.51)
10 year bond rate   3.51 (up from 3.30)
NZ/US dollar      0.7497 (down from 0.7621)

OCR to Ease
Over the past three weeks our currency has weakened against the Australian dollar (from close to parity to 93 cents currently). We have eased against other currencies as well.  We read into this, that the market is pricing in an imminent drop in our OCR and that it will likely happen in either June or July. Australia has already been easing this year, and now has an OCR of 2.0%, well below our 3.5%. Some commentators are saying that the Governor of the Reserve Bank is reluctant to ease because of the Auckland property market. We hope this is not the case, as it only makes up just over a third of the national property market. On the flip side, a large number of Kiwis work in exporting industries and the high exchange rate has a particularly negative effect on these businesses. Hopefully our Reserve Bank starts the easing from next month.

Other Factors Making Auckland More Popular
House prices are rising in Auckland, with the most common reason put forward being that most of the immigrants are settling in Auckland. There are a number of other reasons. A number of corporates, over the past twenty years, have been moving their head offices from Wellington to Auckland. Educationally there are reasons, the University of Auckland continues to perform strongly against its international peers and as a result becomes increasingly attractive to off shore students.  As over 80% of all overseas tourists arrive in Auckland, the tourist sector is developing rapidly in this city. Auckland will continue to grow and is currently adding a Dunedin every two and half years.  There is a real effort required by the council to increase the infrastructure to meet this growing demand. Currently they are failing.

Reserve Bank Announces New LVR Restrictions on Auckland Housing
Last Wednesday, the Reserve Bank released its May Financial Stability Report. The Governor identified house prices in the Auckland region as a systemic risk to the financial system.  While noting that house price growth reflected supply constraints and increased demand, driven by record net immigration, low interest rates and increasing investor activity, he chose to address just the later factor (investors).  The Reserve Bank has proposed changes to the loan-to-value ratio (LVR) policy to take effect from 1 October.  These will require residential property investors, in the Auckland Council area, using bank loans to have a deposit of at least 30 percent.  The proposed LVR restrictions will not apply to loans to construct new houses or apartments.   In addition, the RBNZ is establishing a new asset class for bank loans to residential property investors, requiring banks hold more capital against this asset class.  This will increase the cost of finance for property investors and therefore rents.  The RBNZ has not addressed the excess demand caused by immigration.

Asset Lends
This is one type of lending that we are doing. These include transactions where, for a variety of reasons, the borrower has not the income at present, but what they are doing makes business sense. It may be someone purchasing a property with the view of tidying it up and reselling. It may be someone purchasing a business and using their home as security. It could be someone rationalising their portfolio and just needing some more money and time to do this. This is certainly part of our normal lending. 

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.