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Cairns Lockie Mortgage Commentary - 28 Mar 08

Cairns Lockie Mortgage Commentary

Issue 2008 / 4 28 March 2008

Welcome to the fourth fortnightly Cairns Lockie Mortgage Commentary for 2008. We aim to keep you informed on developments at Cairns Lockie, Home Loans and the mortgage market in general. Previous issues of this commentary can be found on our website

The Money Market

This morning (8 am on 28 March 2008) the money markets were at the following levels:

Official cash rate 8.25% (unchanged)
90 day bill rate 8.96 (up from 8.90)
1 year swap rate 8.63 (down from 8.75)
3 year swap rate 8.00 (down from 8.19)
10 year bond rate 6.38 (up from 6.36)
Kiwi dollar 0.8045 (down from 0.8074)

Finance Company Sector

The finance company sector continues to receive, what we believe is unduly bad press. This unfairly punishes the good companies within this sector. In the wider context (which we believe is important to consider) the issues that are facing finance companies are spreading to other sectors. We have seen world share markets fall and a number of shares in our market have fallen by 20 - 50%. In Australia, the banks, such as NAB and CBA, have suffered share price losses of up to a third of their value, from their highs of last year. What were considered safe and secure funds (the ING Diversified Yield Fund and the ING Regular Income Fund) has suspended redemptions, which we consider is appalling. The high profile property syndicator, Blue Chip, has all but gone, affecting hundreds of investors. The New Zealand Superannuation Fund which should have a conservative asset allocation, has seen its value drop, and its chief investment officer has been made redundant. We do get annoyed at many negative comments that are made by unqualified commentators who seem to be only targeting the finance company sector. For our finance company, it is very much business as usual, we are lending and receiving deposits (although clearly at a lower rate than last year). In many ways the quality of our lending applications is improving, due to less competition in our sector. We are continuing with our conservative stance of only lending first and second mortgages secured over residential properties.

Interest Rates and Inflation

Our Reserve Bank is consistently saying that we must have higher interest rates to keep inflation under control. This is not the case in a number of other countries when mortgage affordability, stability of the financial system and currency management is considered of equal importance. For instance, the overnight cash rate in the USA has been progressively reduced to 2.25%, yet their inflation rate is above this at 4.2%. Similarly Europe has a low overnight cash rate at 4.00% yet their inflation rate is 3.20%. New Zealand has the highest overnight cash rate in the OCED of 8.25% yet our official inflation rate is 3.2%. It appears that given the state of the financial markets, our inflation levels are not high by world standards, and so we should have lower interest rates in this country. Excessively high interest rates is causing unnecessary mortgage stress, restricting property market access for first home buyers, as well as inflating our currency, which in turns causes more pain within our important exporting and tourist industries.

Making Houses More Affordable

The Government announced earlier this week that it is aiming to cut some of the red tape associated with do-it-yourself renovations and allow developers to build up to fifty houses with just one consent. The aim of this is to cut compliance costs and make houses more affordable. We believe this is a good idea but we think if the Government is serious about home affordability, the most effective way of achieving this, is to our reduce our mortgage rates. On a standard $300,000 mortgage every one percent drop, saves the homeowner $250 per month.

Our Seminars for our Introducers

Over the next two months, for our regular introducers of business, such as mortgage brokers and financial planners, we are holding a number of seminars throughout the country. We will be providing an update on the current state of the financial markets and a rundown on our product range. Attendees will qualify for 2 CPD points with the NZ Mortgage Brokers Association. Seminars are commencing next week with presentations in Whangarei on Tuesdy and Napier on Thursday. If you have not received an invitation and would like to come please contact Lorraine in our office on 09 526 7819 or email lmcrae[at]

Our current mortgage interest rates are as follows:

Variable rate 10.40%

No Financials Home Loan 11.00

Jumbo Loan 10.40

One-year fixed rate 10.28
Two-year fixed rate 9.84
Three-year fixed rate 9.74
Five-year fixed rate 10.54

Line of credit facility 10.50

William Cairns
James Lockie


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