Cairns Lockie Mortgage Commentary 10 Oct 2008
Cairns Lockie Mortgage Commentary
Issue 2008 / 18 10 October 2008
Welcome to the eighteenth 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 10 October 2008) the money markets were at the following levels:
Official cash rate
90 day bill rate 7.63 (down from 8.07)
1 year swap rate 6.64 (down from 7.28)
3 year swap rate 6.55 (down from 6.95)
10 year bond rate 5.70 (up from 5.65)
Kiwi dollar 0.6028 (down from 0.6804)
Reserve Bank Should Move Now
If ever the Reserve Bank had an excuse to move on the Official Cash Rate (OCR) it was this week after the Australian Reserve Bank surprised the market with a 1% drop on Tuesday afternoon. The Australian OCR is 6.0% against our 7.5%. Similarly this week, the reserve banks of the USA, UK, Canada and the European zone have cut their rates by half a percent. Some Asian banks have done the same. By delaying reviewing our rate, we have seen our currency rapidly appreciating against the Australian which must be damaging anyone exporting to that country. In our opinion the Reserve Bank should cut immediately and follow the examples of several overseas reserve banks rather than waiting a fortnight until 23 October 2008.
Floating Rates Only on Some Products
Due to the turbulence in the wholesale financial markets and the increasing cost of obtaining long dated funds, we have, for the time being, on some of our products, withdrawn fixed rate lending options. This may inconvenience a few of our borrowers but once the wholesale markets settle down, longer dated fixed rate options will be offered again. There are two more rate reviews scheduled to be done by the Reserve Bank before the end of the year. The Governor is expected to drop rates on both occasions. As mentioned above, the Reserve Bank of Australia, earlier this week, dropped rates by 1% in a special one-off announcement. Any changes in the Official Cash Rates should be immediately recognised in the floating mortgage rates. Due to the volatility in the financial markets we can expect to see a couple of downward movements in mortgage rates before Christmas.
Lo Doc Still Available
We are one of the few lenders that still offers a true lo-doc mortgage for the self employed. This is a flexible product where the self employed person can declare their income rather than provide financials. Often when a business is growing rapidly and the financials may be up to eighteen months old, these accounts may be totally out of date. Due to the credit crunch we have limited our LVR's to 80% and we will be asking more questions about the applicant’s business. The business must have real cash flow and cannot be dependent on land sales and property developer’s margins. Considering that around one in eight New Zealanders is self employed, there is considerable scope for this type of lending.
Guaranteeing of Bank Deposits
This week the European Union (EU) have all agreed to guarantee household bank deposits to a level of 50,000 Euros (NZ$105,000). The Americans have been doing the same. We should be considering this too. While most commentators acknowledge that our banks are robust, it may be prudent to bring in a guarantee scheme before any problems emerge. The last thing we want is a situation where queues of people are outside a bank demanding their money back. We have seen recent failures here - the Bank of New Zealand was bailed out in 1992 by the Government, the Development Finance Corporation (DFC) collapsed in the late 1980's. Some finance companies, but not all, have collapsed due to rapidly deteriorating liquidity. This is the time to be ahead of the game rather than reacting to a more serious future problem.
Our current mortgage interest rates are as follows:
Variable rate 10.15%
Lo Doc Home Loan 11.05
Line of credit facility 10.25