BORROWERS Mortgage Commentary 13 / 2015
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Issue 2015 /13       7 August 2015

Welcome to the thirteenth 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 evening (5pm on 6 August 2015) the money markets were at the following levels:
Official cash rate    3.00% (unchanged)
90 day bill rate       3.02 (down from 3.07)
1 year swap rate    2.85 (down from 2.87)
3 year swap rate    2.96 (unchanged)
10 year bond rate   3.01 (down from 3.38)
NZ/US dollar      0.6540 (down from 0.6610)

Interest Rates
Over the past three months the Reserve Bank has reduced the Official Cash Rate from 3.5% to 3.0%. The market is expecting that there will be at least two more cuts but we believe that there will be more. There is no doubt that our economy is slowing. This can be seen by walking around our capital city or our provincial towns. The dairy industry is seeing its payouts more than halved. Our export sector is doing better (including apples, wine and tourism) but dairy makes up a large portion of our export dollars. The slowdown is beginning to be seen in our unemployment figures - they have inched up from 5.3% to 5.9%. Inflation is at historical lows, also a sign of an economy with issues. Our view is that the OCR will drop another 0.75% and be at 2.25% at the end of the year. This is good for those with floating rate mortgages - they will follow the OCR down and drop by up to three quarters of one percent.  

Auckland’s Housing Supply
The real issue in Auckland is that we are just not building enough houses. It is simple - if you are not building enough houses and your population is growing then house prices must increase. Auckland has been in similar positions before in its history but local Councils and the Government have responded by quickly building more houses. During the 1950s and 60s, we experienced large migrations to Auckland, from both overseas and the provinces, exactly as we are today. We responded accordingly, and quickly built more dwellings. It is not hard. There are quantities of Council and Government owned land that can be sold to developers. In certain parts of our city, we will have to accept medium density apartments, as they do in places such as Sydney and Vancouver. We have to do something, as our population growth is just not going to slow in the foreseeable future. 

Mortgages are at 50 Year Lows
Often commentators say that in the mid 1980s you could purchase a house for three times your income, whereas today you are looking at 6-8 times. What they forget to tell you, is back then, prime bank interest rates were 15-19%, whereas today they are less than a third of this.  This means today’s borrowers can support a much higher level of debt than they could thirty years ago. The big difference was that inflation was higher then - at times over 10%. This greatly assisted borrowers. This is not so much the case today. 

Bridging Finance
The property markets in Auckland and Christchurch are strong. In these cities, a number of people are purchasing a new property before they have sold their existing one. In an active market this often works, but there is a risk - you can get caught and have to settle before you have sold your property. This is an area in which we can assist - unlike the banks who generally require the borrowers to have a firm takeout arranged. We are happy to provide open ended bridging finance to fund this time gap and period of uncertainty. Please give us a call if you would like to discuss options.

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.