Cairns Lockie Mortgage Commentary Issue 2001/3

Issue 2001/3 2 March 2001

Welcome to the third Cairns Lockie Mortgage Commentary for 2001. This is a fortnightly electronic newsletter which aims to keep you informed on developments at Cairns Lockie, Mortgage Bankers and the mortgage market in general. Previous issues of this commentary can be found on our website http://www.emortgage.co.nz/newsletters.htm

The Money Market

This morning (9am on 2 March 2001) the money markets were at the following levels:

Official cash rate 6.50% (unchanged) 90 day bill rate 6.45 (down from 6.55) 1 year swap rate 6.17 (down from 6.30) 3 year swap rate 6.26 (down from 6.45) 10 year bond rate 5.90 (down from 6.10) Kiwi dollar 0.4340 (up from 0.4270)

The Peoples' Bank - An Advance Retrospective

Over the past fortnight we have been asked to comment on the Peoples' Bank. We have decided to devote this whole newsletter to this issue. Having established and operated a mortgage banking company for the last two years, we feel well placed to comment. We see a number of issues and problems, particularly in the following areas:

Security

A considerable sum is required to upgrade security. Basic security such as safes, alarms and security proof fittings will have to be added. Staff workstations will have to be upgraded to meet the necessary security requirements. If the criminal fraternity think that the NZ Post branches do not have the same security practices as the banks, they will be seen as an easy target. This will put their customers at considerable risk. NZ Post has approximately double the number of branches as the ANZ bank, so the cost of making their branch network secure will be considerable.

Will People Change Banks?

Changing your bank is a major exercise. If you have automatic payments going in and out of your account, you will have to contact each and every one. Some may require written confirmation. This will not be smooth exercise. Some payments will not be made; others will be made twice. It is virtually impossible to change your account, if you have mortgage with the bank concerned. What will happen to your overdraft and credit card limits? It is interesting that companies like ours are only targeting the mortgage business. We know how difficult and slow it is to get people to change their banking arrangements.

Competing with Other NZ-Owned Operations

Despite the assurances of its political supporters, the Peoples' Bank will be competing with a number of NZ-owned financial institutions. Over 200,000 New Zealanders have there banking arrangements with Credit Unions. These are true peoples' banks as they are mutual organisations owned by their members. Their directors are members as well, who receive no remuneration for their services. Remember their advertising last year fronted by a former Labour Prime Minister, David Lange. Their slogan was " Where do you find a place that's owned by the people banking with it?" There are also eleven Building Societies in NZ. They provide banking services in several regional areas as well as supporting the regions they operate in. Most are community owned. One of them is quite large, the Southland Building Society. We have a home grown bank, the TSB Bank. The PSIS operates in similar markets. There are new mortgage lending companies such as Cairns Lockie Limited which are NZ owned and operated, offering a range of mortgage services. The Peoples' Bank will compete directly with all these New Zealand owned operations.

Reserve Bank Approval

All new banks require Reserve Bank approval. This has not yet been obtained, although we do not see too many problems in this area.

The Next Government May Sell It

We are now in a MMP environment. Governments can alter with only a few changes in the number of seats. A centre right government may decide to sell it. The customers will have no say, in to whom this bank may be sold. Establishing the Peoples' Bank was purely a political decision with no economic rational, and it can be sold for exactly the same reason. If it turns out to be a loss making organisation, then this will be another reason to get rid of it.

Our current mortgage interest rates are as follows

Variable rate 8.25%

Quick Start Home Loan 6.99 One-year fixed rate 7.35 Two-year fixed rate 7.35 Three-year fixed rate 7.45 (new) Five-year fixed rate 7.55 (new)

Line of credit facility 8.60

Regards William Cairns James Lockie

Cairns Lockie Limited PO Box 74-212, Market Road, Auckland Telephone (09) 525 9711 Facsimile (09) 579 7795 Website http://www.emortgage.co.nz Email mailto:wcairns@emortgage.co.nz mailto:jlockie@emortgage.co.nz mailto:gslade@emortgage.co.nz mailto:sgasson@emortgage.co.nz mailto:plange@emortgage.co.nz

If you know anyone who may find this newsletter useful we would be happy for you to forward it on.

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