Cairns Lockie Mortgage Commentary

Issue 2001/16 30 August 2001

Welcome to the sixteenth 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 (6pm on 30 August 2001) the money markets were at the following levels:

Official cash rate 5.75% (unchanged)
90 day bill rate 5.75 (down from 5.85)
1 year swap rate 5.97 (down from 6.03)
3 year swap rate 6.48 (down from 6.76)
10 year bond rate 6.46 (down from 6.60)
Kiwi dollar 0.4400 (up from 0.4327)

What is the Difference Between Interest and Finance Rates

Recent television articles have highlighted some uncertainty regarding how interest rates are quoted. The standard interest rate is the actual rate of interest you are paying on the total funds borrowed (i.e. annual interest as a percentage of the amount borrowed). The finance rate takes into account any fees that are paid (i.e. annual interest plus all fees and costs as a percentage of the amount borrowed). For example if you take out a mortgage with no fees being charged, the interest rate and the finance rate will be the same. If a fee is charged the finance rate will always be higher than the interest rate. The purpose of disclosing the finance rate is to inform the borrower exactly what their cost of funding is.

Top End of the Auckland Residential Market

People tend to treat the residential property market as one homogeneous market. This is not correct. The residential market is, in fact, made up of many, niche and regional markets. Each of these markets can be performing quite differently to the other parts of the market. One niche market which is not often mentioned and that has been performing well over the past two years, is the upper end (top 15%) of the residential market in Auckland. Since January 1999 the median price of this market has increased from $460,000 to $560,000 in July 2001. This is an increase of 21%. The top three selling selling suburbs (with the following median prices) have been: Remuera, $682,000, Milford/Takapuna $638,000 and Epsom/ Mt Eden at $575,000. Agents are reporting there is a shortage of stock in these suburbs.

Are New Zealanders Paying Too Much

In Australia mortgage rates are roughly 1% lower than they are in this country. Our two countries are similar in may ways: we are commodity producers, have comparable levels of inflation and unemployment, are at corresponding stages of the business cycle and have Reserve Banks that operates much the same monetary policy. Taking these factors into consideration we should have virtually the same mortgage rates. Why are our mortgage rates different? One reason maybe is the Reserve Bank of Australia is taking much more consideration of the slowdown of the world economy whereas our central bank is focusing much more on the domestic economy. One strength of our Reserve Bank is if our economy starts to slow, we do have the ability to drop our wholesale rates further.

New Housing Flat

The number of new residential building consents continues to be slow. There were a total (seasonally adjusted) of 1,690 housing approvals for July. This compares to 1,688 for July last year. There were 1,640 actual approvals in June 2001 well down from the May 2001 actual of 1,856. The apartment market has not fared any better.

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 7.50
Three-year fixed rate 7.79
Five-year fixed rate 7.99

Line of credit facility 7.75

Regards William Cairns James Lockie

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