Cairns Lockie Mortgage Commentary 7 Nov 2008
Cairns Lockie Mortgage Commentary
Issue 2008 / 20 7 November 2008
Welcome to the twentieth 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 7 November 2008) the money markets were at the following levels:
Official cash rate
90 day bill rate 6.65 (down from 7.11)
1 year swap rate 6.00 (down from 6.31)
3 year swap rate 6.20 (down from 6.36)
10 year bond rate 6.01 (up from 5.92)
Kiwi dollar 0.5920 (down from 0.5892)
Further Wholesale Interest Rate Cuts
A fortnight ago our Reserve Bank reduced our Official Cash Rate by 1.0% from 7.5% to 6.5%. Since then the Australian Reserve Bank has cut its cash rate by a further 0.75% to 5.25%. The Bank of England last night reduced the cash rate in the UK by a massive 1.5% and that country now has a cash rate of 3.0%. In the USA the overnight cash rate now stands at a historic low of 1.0%. There is an obvious case here for our Reserve Bank to cut our cash rate when it meets on 4 December 2008. The consensus is that 0.5% is likely, although with the recent cuts in the past week, a full 1.0% cut may be on the cards. After a cut such as this our Official Cash Rate would still be a 5.5% and is still one of the highest in the world. This does leave us room for further interest rate cuts in the future.
GE (General Electric) announced, a fortnight ago, that it was exiting the New Zealand and Australian markets as third party mortgage funders, motor vehicle funders and providers of finance to small and median sized businesses. This was unexpected and it is negative for a number of non-bank mortgage lenders, who will be unable to originate any further mortgages through this source (including top ups for existing clients). This will cause an inconvenience to our existing clients which we do apologize for. We understand that this action has been taken by GE as it wishes to exit certain financial markets in Australasia and also due to the international credit crunch.
We are Prime Lenders at Bank Rates
As a non-bank mortgage lender, we currently have access to three other wholesaler excluding GE which is exiting the market as discussed above. One of our wholesalers is Origin, which is a wholly owned subsidiary of the ANZ Bank. This wholesaler is able to write income verified bank styled loans. The real advantage is that we can write these loans at prime bank rates. See our rates below. Given that around 90% of all residential lending in the market falls into this category, this enables us to write competitive business. This enables our borrowers and their brokers, the ability to obtain bank-like products from us without the rigmarole of dealing with a bank.
Rate Cuts are Very Positive
We find it hard to understand the reluctance of our Reserve Bank to cut our interest rates further. It is unlikely to be inflationary as in recent months we have seen petrol and food prices actually falling. It will provide some real relief considerably greater than any tax cuts to home owners with mortgages. On a $300,000 standard mortgage a 1% cut in mortgage rates represents an increase (which is after tax) of nearly $58 in the hand each week. This is real money. Businesses, in most cases are borrowers, and a drop in interest costs will go directly to their bottom line. The property investment sector is under some stress and lower interest rates will restore some confidence here. As we enter a recession and with the world wide credit crunch we can progressively lower our interest rates.
Our current mortgage interest rates are as follows:
Variable rate 9.50%
Lo Doc Home Loan 9.50
One-year fixed rate
Two-year fixed rate 8.30
Three-year fixed rate 8.45
Four-year fixed rate 8.60
Five-year fixed rate 8.70
Line of credit facility 9.55