Cairns Lockie Mortgage Commentary 22 June

Cairns Lockie Mortgage Commentary

Issue 2001/11 22 June 2001

Welcome to the eleventh 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 evening (5pm on 21 June 2001) the money markets were at the following levels:

Official cash rate 5.75% (unchanged)
90 day bill rate 5.84 (unchanged)
1 year swap rate 5.91 (down from 5.96)
3 year swap rate 6.65 (down from 6.78)
10 year bond rate 6.30 (down from 6.66)
Kiwi dollar 0.4135 (up from 0.4120)

Proposed Housing Tax - Our Thoughts

The McLeod Committee, looking at tax reform, has suggested that the equity in your house should be taxed. It works this way. If you have a $300,000 house with a mortgage of $100,000, your equity is $200,000. The tax is worked out using the risk fee rate, (say 6%) on your equity multiplied by your marginal tax rate. In the above example you would have to pay $4,680 of additional tax each year. ($200,000*0.06 = $12,000 at say 39% = $4,680). The comment on talk back radio and in the media indicates this will be particularly unpopular in New Zealand. It also throws up a number of anomalies

a) Pensioners on a low income but with high valued properties will be severely penalised. b) Those who decide to pay off their mortgage more quickly will be penalised considerably more than those who use their mortgages to purchase lifesyle assets such as expensive boats and cars. c) There will be a number of avoidance schemes. Those who are self-employed will be tempted to create loans to their businesses to negate this wealth tax.

We Continue to Expand

Cairns Lockie has two subsidiary companies, General Finance and our contributory mortgage company. General Finance, as well as offering a no-financials product, does offer second mortgage finance. Our typical second mortgage transaction is to a borrower who requires short term finance and does not want to alter their first mortgage arrangements. Such transactions include individuals wanting to buy consumer items such as cars or business people requiring some business finance. All loans are secured over residential properties. Loan amounts typically range from $10 - 30,000. If you have a second mortgage requirement please do not hesitate to contact us, or visit http://www.general.co.nz

We are Taking Investments - Our Investors' Rate is 8.5%

Our contributory mortgage company is progressing well. We have received a number of quality lending applications and now we are focusing on potential funders for these mortgages. Our current rate for one to two years for our investors is 8.5%. If you have spare cash, or any of your friends or clients do and they would like to diversify their portfolio, then why not look at putting some of your funds into one of our mortgages. Our contributory mortgage company only lends on first mortgage security. In most cases the lending margin is limited to two thirds of the value of the property.

Peoples Bank into the Red

We note that the so-called Peoples Bank has appointed Wellington advertising firm Red Rocks. Amongst other things they will have input into the new bank's name. The first year's advertising budget is around $4 million. What! A bank with neither income nor clients already planning to waste taxpayers' money. Surely this amount and all future expenditure on this bank would be better spent on hospitals, schools, and roading.

Because we don't spend $4 million on advertising:

Our current mortgage interest rates are as follows

Variable rate 7.40%

No Financials Home Loan 8.40

Quick Start Home Loan 6.69

One-year fixed rate 7.10
Two-year fixed rate 7.45 (new)
Three-year fixed rate 7.79
Five-year fixed rate 8.10

Line of credit facility 7.75

Regards
William Cairns
James Lockie

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