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Cairns Lockie Mortgage Commentary 6 October 2006

Cairns Lockie Mortgage Commentary

Issue 2006 / 18 6 October 2006

Welcome to the eighteenth fortnightly Cairns Lockie Mortgage Commentary for 2006. We aim 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 6 October 2006) the money markets were at the following levels:

Official cash rate 7.25% (unchanged) 90 day bill rate 7.67 (up from 7.59) 1 year swap rate 7.62 (down from 7.66) 3 year swap rate 7.22 (up from 7.20) 10 year bond rate 5.77 (up from 5.75) Kiwi dollar 0.6640 (down from 0.6680)

More to a Home Loan than Just the Rate

In some cases borrowers looking for a home loan seem to focus purely on the interest rate and nothing else. There is, in fact, a lot more to obtaining the ideal mortgage than just the rate. We believe all mortgages (and ours are) should be fully featured. We include full redraw facilities. This is particularly useful if you are self employed, or if your income fluctuates. Being able to make additional repayments and then redraws to match your cash flow can be useful. Your mortgage must have simple fixing options without additional fees being charged. There is no point fixing your mortgage for five years when you may sell it in two, and incur additional repayment charges. If you are an investor or using your mortgage as a source of business finance, then interest-only options will be useful. You may also want the ability to split your mortgage into those parts that are for business use and hence tax deductible, and those that are not. Portability is a useful option; if you sell your house and buy another then you should be able to take your mortgage with you. These features are all available with your Cairns Lockie Home Loan.

State Houses Become Stately Homes

According to Housing New Zealand, 11,000 families are waiting for state houses. However there are numerous cases, 104 to be exact, of state houses being worth over $700,000 each. There are three in Auckland, worth over $1.4 million. Even in Invercargill, where there are some of the least expensive houses in the country, there is a state house worth over $500,000. Surely, the logical answer is to sell these expensive houses and use the funds to buy a greater number of moderately priced dwellings. For example if the top five state houses in Auckland are worth $6.3 million, and if they were sold, a further sixteen houses, at average Auckland prices, could be purchased.

The Rental Gap is Widening

For once, good news for those renting - the cost of owning a home is increasing at a faster rate than the cost of renting, according to the Department of Building and Housing. The Consumer Price Index indicates that rents increased by 2.2 percent while the cost of homeownership increased by 6.6 percent in the year ended March 2006. This was due to the higher mortgage rates, city council rates, maintenance costs, and council permits for renovations. These are real costs to home owners and property investors.

Too Much Invested in Property?

Some financial commentators suggest that New Zealanders have a too high a weighting of their assets in property. What many of these commentators fail to note is that these investors may be right. It is widely known that the percentage of owner occupied dwellings is decreasing and the demand for rental housing is actually increasing. We very seldom hear of residential accommodation lying vacant for long periods. Comments from our investors are that if you are negotiable with your rent and the rental accommodation is well presented, it is relatively straight forward to let, in the current environment. Officially, inflation is running at just over 3% according to the Reserve Bank but unofficial inflation (compare for example your utility and city council rates bills over a three year period) may be running closer to 5%. The higher the inflation rate, the greater the negative impact it has on equity and bond investments, but as most investors know this is positive for property.

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 8.20

One-year fixed rate 8.63 Two-year fixed rate 8.28 Three-year fixed rate 8.07 Five-year fixed rate 7.93

Line of credit facility 9.30

Regards William Cairns James Lockie


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