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Cairns Lockie Mortgage Commentary

Issue 2002/1 8 February 2002

Welcome to the first Cairns Lockie Mortgage Commentary for 2002. 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 7 February 2002) the money markets were at the following levels:

Official cash rate 4.75% (unchanged)
90 day bill rate 4.89 (up from 4.88)
1 year swap rate 5.36 (up from 4.96)
3 year swap rate 6.37 (up from 6.26)
10 year bond rate 6.53 (up from 6.51)
Kiwi dollar 0.4165 (up from 0.4152)

Mortgage Rate Outlook for 2002

A fortnight ago the Reserve Bank announced that it would leave the Official Cash Rate unchanged, citing buoyant retail sales over the Christmas period, a relatively strong residential property market (particularly in Auckland) and economic resilience despite September 11th. For example the USA is in recession and we are not.

Where to from here. If our economy and those of our trading partners deteriorate our rates will ease; if things improve they will likely move upwards. We believe that for much of the year, the floating mortgage rates will remain largely unchanged. Fixed rate mortgages, particularly the three and five-year terms have risen by around 1% over the past two months. We have a strong positive yield curve where the short-term rates are considerably less than the fixed rates.

Borrowers should be aware that any rate increases or decreases are now in the order of quarter to half a percent nowadays rather than the one or two percents as was normal seven or ten years ago.

Residential Property Market Ablaze

Over the past six months the residential property market has been improving, particularly in the Auckland region. Sales volume has been increasing month on month. Recent articles in the NZ Herald earlier this week confirmed that it is becoming increasingly difficult to obtain suitable rental properties and rents are moving upwards. The reasons are: · The economic fundamentals for NZ are still looking good. The current account deficit is decreasing and our economy is stable · Low mortgage rates. It looks like our floating rate will stay at the current levels for sometime to come. · Low unemployment. Creating more confidence amongst purchasers. · Given the overseas uncertainty, local residential property is being seen as a secure investment and ownership choice.

Cairns Lockie Releases the "Non Conforming Mortgage"

We are now moving quickly to becoming a one-stop shop for residential mortgage finance. As a lender we are aware of a large number of potential borrowers, maybe up to 25% of the market, who for a number of reasons are unable to obtain a normal prime rate residential mortgage. Typically these borrowers, who are potentially good clients, have suffered one or two problems which has caused some financial hardship. These may have included such things as a business failure, divorce or a family crisis, inappropriate investment decision or a period of unemployment. As a result this has impacted on the borrower's credit report and hence their ability to borrow mortgage moneys. We have developed a Non Conforming product that will assist this group of borrowers. This is a good product; please feel free to contact us for more details.

Where Did The Last Three Years Go

Cairns Lockie is now three years old. The last three years has seen a lot of change in the mortgage market, with the release of new products including our No Financials Home Loan, the lowest mortgage rates in the past thirty years and the growth of the non bank mortgage sector. The beneficiary has been the consumer.

Over the next twelve months we expect product innovation to continue, tough competition within the mortgage market to keep mortgage rates low and a few new players coming into an already crowded market. We have seen some Australian Home Loan companies try and establish themselves here, but most with little success. We will see a few more come and they will likely go as well. We have the Peoples' Bank trying to establish themselves. They have yet to realise that NZ bank fees are low by world standards and the mortgage market is super-competitive. For the borrower or depositor wanting a New Zealand owned institution to bank with there are already a number here, including credit unions, various regional building societies, PSIS, TSB as well as a mortgage companies such as, Cairns Lockie.

Our current mortgage interest rates are as follows

Variable rate 6.40%

No Financials Home Loan 7.40

Quick Start Home Loan 6.30 (new)

One-year fixed rate 6.60 (new)
Two-year fixed rate 7.35 (new)
Three-year fixed rate 7.72 (new)
Five-year fixed rate 8.10 (new)

Line of credit facility 6.75

Regards William Cairns James Lockie


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