Cairns Lockie Mortgage Commentary 6 July
Issue 2001/12 6 July 2001
Welcome to the twelfth 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 6 July 2001) the money markets were at the following levels:
Official cash rate 5.75%
90 day bill rate 5.80 (down from 5.84)
1 year swap rate 5.99 (up from 5.91)
3 year swap rate 6.89 (up from 6.65)
10 year bond rate 6.80 (up from 6.66)
Kiwi dollar 0.4037 (down from 0.4135)
No Change in the Official Cash Rate
The Reserve Bank did not alter the Official Cash Rate on Wednesday and stood firm in the face of growing pressure for a further cut in interest rates. The Governor stated that he was aware of deteriorating conditions overseas, but commented that our economy was reasonably robust and there were some unacceptably high inflationary pressures. As a result the OCR remains at 5.75%. On the same day the Reserve Bank in Australia also left their rates unchanged. Floating mortgage interest rates over next month will remain largely unchanged. As we are seeing some increase in the three and five year fixed rates the yield curve is becoming more positive. The Governor will review the OCR again on 15 August. Consensus suggests we will see a decrease by 25 basis points.
Use Your Mortgage for Wealth Creation
Television advertising regularly exhorts people to use their mortgage to purchase consumer items, motor vehicles and other things, such as overseas holidays. We see people using their mortgages for a number of other reasons, often for wealth creation, which in many cases makes the interest tax deductible. Some areas include using your mortgage to purchase a rental property or to assist with purchasing commercial properties. We have seen people borrow to buy shares. When this is done, borrowers tend to take more of a portfolio approach rather than buying single shares. We have seen people purchasing shareholdings in private companies or other higher yielding investments. At our current floating rate of 7.4%, if your mortgage is tax deductible, then it is extremely cheap borrowing.
Your Credit Report - A Valuable Asset.
Everyone who has borrowed money will have a credit record with one of the main credit agencies. All lenders, including retail hire purchase, finance or mortgage companies, get credit checks. If borrowers do not fulfil their obligations then collections, defaults, and judgements will be recorded on their report. If someone has abused their credit position it will often make it more difficult, expensive, or sometimes impossible to borrow money. We have seen cases of younger couples wishing to borrow 90-95% to purchase their first house being unable to do so because of past abuse of their credit position. Borrowers should realise that a good clean credit report is a real asset that will make borrowing cheaper, quicker and easier.
Peoples' Bank Again
Over the past fortnight we have seen the considerable and very public infighting amongst the NZ Post Board. The problems appear to be over the future direction of the board, the various personalities involved and how they will launch the Peoples' Bank. Banking is a relatively risky business, extremely competitive and difficult to grow. If, as we have seen, the Board is dysfunctional now, what will happen when the heat really goes on? This will be compounded by the apparent lack of banking expertise within the existing Board. Recent appointments appear to be more political in nature rather than individuals with extensive postal services and banking expertise. This does not look good.
Our current mortgage interest rates are as follows
Variable rate 7.40%
No Financials Home Loan 8.40
Quick Start Home Loan 6.69
Two-year fixed rate 7.65 (new)
Three-year fixed rate 7.94 (new)
Five-year fixed rate 8.19 (new)
Line of credit facility 7.75