BORROWERS Mortgage Commentary 09 / 2015
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Issue 2015 /9         12 June 2015

Welcome to the ninth 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 12 June 2015) the money markets were at the following levels:
Official cash rate    3.25% (down from 3.50%)
90 day bill rate       3.29 (down from 3.49)
1 year swap rate    3.19 (down from 3.36)
3 year swap rate    3.35 (down from 3.47)
10 year bond rate   3.61 (up from 3.45)
NZ/US dollar      0.7030 (down from 0.7178)

Official Cash Rate
The Official Cash Rate decreased by 25 basis points or a quarter of one percent today (Thursday), taking the market by surprise.  Most commentators had said that a rate cut was going to occur, but not until August or September. The reason is that our economy is easing.  Inflation is close to zero, and unemployment remains stubbornly at over 5%.  Dairy prices remain weak and may do so for longer than expected.  Our exchange rate has eased over the past six weeks and has fallen further since the rate cut, but it still remains at historically high levels. The fall in the OCR is good news for those with mortgages and will assist the exporting sector.

Capital Gains on Property
The new property tax, on residential investment properties that are sold within a two year period, is really a capital gains tax. It will affect all investors, whether they are New Zealand domiciled or foreign buyers. It will enable the authorities to obtain far greater information on exactly who is buying and selling properties.  Offshore buyers will have to obtain a New Zealand bank account, as well as an IRD number. There are a number of requirements that have to be met in order to obtain a local bank account. There are of course ways of getting around these new rules, such as using blind trusts and nominee companies, but it is getting more difficult.  The two year time period can easily be extended to three or five years at the stroke of a pen. The new regulations take effect on 1 October this year.

There are currently two main factors driving our economy. Firstly it is the high rates of immigration which has gone mainly into Auckland over the past three years. This immigration consists of three types, New Zealanders returning from overseas, particularly from Australia, people moving from the rest of the country to Auckland and finally foreign migrants.  This is further enlarged by a lesser number of people leaving for Australia. The other aspect driving the economy, although this is starting to ease, is the Christchurch rebuild.  The economies in most other parts of the country can be described as flat. Any visit to these areas will confirm this. The Auckland situation is unlikely to change in the short term. Auckland is actually adding a Dunedin every two and half to three years.  This is evidenced by a lot of the existing infrastructure, such as roading, not keeping pace with the growth, together with the continuing increase in the demand for housing.

New Credit Laws
On 6 June the Credit Contracts and Consumer Finance Amendment Act became law.  For brokers and lenders, it focuses on responsible lending for consumer credit contracts, including mortgages. This means, amongst other things, that it must be shown that a borrower can clearly service their proposed loan. The Act discusses the role of guarantors in some detail. A guarantor cannot be simply added to make a loan work. Full financial information on the proposed guarantor must be obtained and assessed, disclosure is required and an assessment of potential substantial hardship made (as for the main borrower). The result of all this is that more information will have to be obtained, particularly a breakdown of the borrower’s income and expenses, in order to ascertain whether they can fully service the proposed loan.

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.