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Cairns Lockie Mortgage Commentary 29 10 2004

Cairns Lockie Mortgage Commentary

Issue 2004/20 29 October 2004

Welcome to the twentieth Cairns Lockie Mortgage Commentary for 2004. 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

The Money Market

This morning (8am on 29 Oct 2004) the money markets were at the following levels:

Official cash rate 6.50% (up from 6.25) 90 day bill rate 6.72 (down from 6.77) 1 year swap rate 6.70 (down from 6.80) 3 year swap rate 6.58 (down from 6.73) 10 year bond rate 6.06 (unchanged) Kiwi dollar 0.6878 (up from 0.6800)

Where Are Those Mortgage Rates Going?

Yesterday the Governor of the Reserve Bank increased the Official Cash Rate by 25 basis points, to 6.50%. Floating mortgage rates will go up by the same amount. What is more interesting is the comments made by the Governor and how the financial markets have reacted. The Governor's comments can certainly be described as dovish, and he signaled this may be the last of the rate increases. The financial markets reacted by a sell off (drop) in both the longer term rates and our currency, indicating that rates may have peaked. So when are rates going to fall? This has implications for mortgage borrowers. If rates have peaked, (and it appears they may have) and they start to decrease next year, it is important for borrowers to stay floating or to fix for no more than 12 months. It is interesting at this point some lenders are starting to offer attractive 2-3 year fixed rates. Borrowers should be aware that some of these rates may not look so attractive in 6- 9 months time.

The Fanning Effect

The media and some of our clients have noted that house prices in the outer suburbs in larger cities, provincial and smaller towns are showing some marked price appreciations. This can be described as the "fanning effect" - when residential property starts to appreciate, prices rise first in the desirable inner city suburbs and they then slowly move out. For example suburbs such as St Mary's Bay, Remuera and Parnell were the first to appreciate - now we are seeing price appreciation in the Waitakeries and the Northern parts of the North Shore. It is starting to move out further. For example sections in Turangi have increased by 117% in the past 12 months, Taupo is doing well (see below), Plimmerton near Wellington rose by 38% and we have heard of houses at Castle Point in the Wairapara selling at over $400,000.

Taupo - Not Just A Lake

One provincial area where property prices continue to be firm is the central North Island holiday destination town of Taupo. According to the Real Estate Institute the median house price in September was $305,000, well up on the July level of $279,000. Taupo is increasingly being seen as a holiday destination, retirement centre, and tourist centre, due to its proximity to the lake and the mountains. Approximately 27% of all housing is owned by absentee owners. Growth is continuing and house prices are starting to mirror those of Auckland and Tauranga rather than other nearby towns. It is becoming harder for the local first time home buyers to purchase in Taupo.

Larger Loans

We are now able to lend on more expensive properties. Our loan amount on any individual property has increased from $750,000 to around $2 million. This change is driven by the increase in the prices of luxury homes and bigger more expensive houses being build. It is now quite common to have blocks of flats selling in excess of $1 million. The second area we have improved is increasing our individual exposures to borrowers. This is a reflection that many borrowers are investing in multiple properties. We are keen to retain these borrowers as clients even if they now own seven or eight properties.

Our current mortgage interest rates are as follows

Variable rate 8.15%

No Financials Home Loan 9.15

Jumbo Loan 8.15

Quick Start Home Loan 7.70

One-year fixed rate 7.91 Two-year fixed rate 7.87 Three-year fixed rate 7.84 Five-year fixed rate 7.86

Line of credit facility 8.25


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