Cairns Lockie Mortgage Commentary 23 May 2008
Cairns Lockie Mortgage Commentary
Issue 2008 / 8 23 May 2008
Welcome to the eighth 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 http://www.emortgage.co.nz/newsletters.htm
The Money Market
This morning (8 am on 23 May 2008) the money markets were at the following levels:
Official cash rate
90 day bill rate 8.71 (up from 8.59)
1 year swap rate 8.50 (up from 8.15)
3 year swap rate 7.85 (up from 7.55)
10 year bond rate 6.60 (up from 6.30)
Kiwi dollar 0.7833 (up from 0.7721)
Budget and mortgages
Yesterday's budget offers little to the large numbers of Kiwis who have mortgages. A third of mortgage holders, this year have faced or will face, significant mortgage rate rises when their fixed rate terms end. For example a typical mortgage in Auckland is around $300,000 (on a $500,000 average home) so that when these mortgages come off their fixed terms (typically around 7.40-7.95%), they are looking at rates in the range of 9.2-9.6%. If someone was on a rate of 7.5% and it increases to 9.4% on a standard $300,000 mortgage they are looking at a weekly interest increase of $109.62. The budget tax cuts, give someone on $40,000 an extra $16 per week or someone on $80,000, an extra $28 per week. These tax cuts pale into insignificance when you are looking at mortgage rate increases of 4 to 6 times the amount of the tax cuts. The negative for mortgage holders, with the budget, is that it may well seem to be expansionary which may delay any decrease in interest rates in the short term. Overall the budget is not that great for those with mortgages.
Inflation is the Problem
According to a number of commentators one of the main reasons that interest rates are not lower in this country is due to our relatively high inflation. If we look at this more closely much of our inflation is outside our control such as rising petrol and commodity prices. A number of our commodities (such as cheese) are subject to international pricing. If our farmers can get a better price overseas, then we just have to pay more. About the only way we can locally control inflation is by controlling Government and Council expenditures. Our Reserve Bank is essentially basing our interest rates on something we cannot control. Other economies like the USA seem to be putting less emphasis on inflation. They have an overnight cash rate of 2.0% compared to our 8.25% and their inflation rate is similar to ours. It is time for the Reserve Bank to put more emphasis on the inflation we can control and exclude that imported inflation such as fuel prices that are clearly outside our control.
Mortgage Criteria is Now Tighter
One aspect of the American sub-prime crisis that is being felt in this country, is that all mortgage lending criteria has tightened up. Basically money is less plentiful and lenders can be choosier. This is now occurring. We estimate that up to 10% of those with mortgages may not qualify if they were to reapply under the newer criteria. It is getting harder to apply for mortgage top ups or extensions. Loans are taking longer to approve and all lenders are requiring more information. The lesson here is that the lending rules have changed and borrowers need to realise this.
Your Credit History
When lenders are looking at approving applications of finance, whether it is for a mortgage, personal loans or hire purchases they will look at a person’s credit report. Due to improving computerisation these reports are now containing more information, including such things as previous credit enquiries, defaults, collections and judgements. In times past, borrowers paid little attention to how their credit reports may have read. This is all changing, as credit is becoming harder to source. A good credit history showing that you are someone who always pays their obligations on time is becoming a real asset to any borrower. Not only does having a good credit report give you a quicker approval with fewer problems but it will mean, increasingly in the future, cheaper access to finance both in terms of interest rates and fees.
Our current mortgage interest rates are as follows:
Variable rate 10.65%
Lo Doc Home Loan 11.55
Jumbo Loan 10.65
One-year fixed rate 9.73
Two-year fixed rate 9.59
Three-year fixed rate 9.54
Five-year fixed rate 10.04
Line of credit facility 10.75