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Cairns Lockie Mortgage Commentary 14 July 2006

Cairns Lockie Mortgage Commentary

Issue 2006 / 12 14 July 2006

Welcome to the twelfth fortnightly Cairns Lockie Mortgage Commentary for 2006, aiming 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 (8.00 am on 14 July 2006) the money markets were at the
following levels:

Official cash rate 7.25% (unchanged)
90 day bill rate 7.46 (up from 7.44)
1 year swap rate 7.49 (up from 7.40)
3 year swap rate 7.14 (up from 6.97)
10 year bond rate 5.88 (up from 5.86)
Kiwi dollar 0.6184 (up from 0.6040)

Building Consents Up In May

Housing consents (that is approval to build new houses) jumped from 1,914 in April to 2,200 in May, which has surprised some housing commentators. For the past couple of months consents have been heading downwards. But a jump in one particular month does not reverse an overall trend. Long run housing consents are declining. At the height of the housing boom two years ago, consents were running at around 3,500 per month; now they are averaging around 2,000. It is expected the current trend in consents will continue for the rest of the year.

Property Partnerships a Smart Way to Home Ownership

As houses prices continue to rise, particularly in Auckland and Wellington, it is becoming increasingly difficult for one particular group, single people, to purchase a dwelling. 100% no deposits mortgages have helped here, but these types of mortgages require borrowers to have reasonable good incomes. There is another alternative, for two people, be they friends or siblings, to form a property partnership. This way you are pooling two deposits, two incomes and two people to work on the property. It is important that these types of arrangements are formalised with a partnership agreement which discusses such things as the duration of the partnership, and how it will be dissolved. The advantage is, that if a property is held for say 5 years and has appreciated by 40% when it is sold, each partner will walk away with considerably more money than they commenced with, which will make it easier to purchase their next property.

Falling Exchange Rate and Overseas Share Tax

Two issues which are currently receiving press attention are our falling exchange rate and the proposed capital gains tax on overseas shares (excepting Australia), both of which are likely to have positive implications for our property market. A fall in our exchange rate makes it easier for overseas people and returning Kiwis to purchase property. Since the beginning of the year, a house selling for one million dollars, has become around 15% cheaper in Sterling terms due to exchange rate movements. When individuals, holding more than $50,000 in offshore shares, realise that their shares will be subject to capital gains taxes when they are sold after 31 March 2007, they will review their portfolios. The most likely areas of reinvestment will be the property market - both residential and commercial.

Our New Coins

Next month our coinage is changing. The 5 cent coin will go, and new smaller 10, 20 and 50 cent coins will be introduced. The older coins will be removed from circulation over the next three months and will then cease to be legal tender. We are surprised with the revision of our coins that our notes are not being reviewed. We could easily replace our $5 and $10 notes with coins. Back in 1967 when decimal currency was introduced a 50 cent coin was introduced. In today's money this will now be worth $9 to $10. In the United Kingdom they have a two pound coin, which is worth about NZ$6. We think it is time to replace those dirty worn $5 notes, with a new and more convenient coin.

Our current mortgage interest rates are as follows:

Variable rate 9.20%

No Financials Home Loan 9.80

Jumbo Loan 9.20

Quick Start Home Loan 8.00

One-year fixed rate 8.48
Two-year fixed rate 7.98
Three-year fixed rate 8.03
Five-year fixed rate 7.89

Line of credit facility 9.30

William Cairns
James Lockie



Cairns Lockie Limited is not a Registered Bank.


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