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General Finance Mortgage Commentary (Amended)

General Finance Mortgage Commentary (Amended)

Issue 2009 / 2 27 February 2009

Welcome to the second fortnightly General Finance Mortgage Commentary for 2009. We aim to keep you informed on developments at General Finance, Home Loans and the mortgage market in general.

The Money Market

This morning (8 am on 27 February 2009) the money markets were at the following levels:

Official cash rate 3.50% (unchanged)
90 day bill rate 3.26 (down from 3.60)
1 year swap rate 2.90 (down from 3.00)
3 year swap rate 3.60 (down from 3.65)
10 year bond rate 4.50 (unchanged)
Kiwi dollar 0.5100 (down from 0.5265)

Positive News in the NZ Herald

It was pleasing to read on the front page of the NZ Herald yesterday the article by reporter Anne Gibson "Now is the time to buy a house". We do not often see positive news these days about the residential property sector. There are a number of positives starting to emerge - we have much lower interest rates than a year ago, most houses are cheaper, and purchasers will have more after-tax take home pay in April due to the tax cuts. Fewer dwellings are now being built. This is largely due to the demise of the finance company sector which was an important funder of property development and commercial housing projects. Due to the state of the world economy, particularly in the UK, we may start to see Kiwis returning home. This will have positive implications for those with rental properties. The only real factor preventing more buyers from entering the market is the fear of their own job security. As job security improves (we do not know when) we expect to see a real improvement in the residential property market.

Role of Mortgage Insurers

The role of mortgage insurers is to protect the lender by offering third party credit protection, i.e. lenders mortgage insurance. If there is a loss on a mortgagee sale then the mortgage insurer is there to insure that loss. One of the main mortgage insurers in this country is Genworth, which has recently received a downgrading in its credit rating by Moody’s Investor Services. This does affect one of our wholesale funders, Calibre Financial Services who has effectively ceased funding until this issue has been worked through. This will have an effect on a number of non-bank lenders but we still have other sources of wholesale funding and our own book. For us it is business as usual.

Asset Lending

Due to the reduction of the number of non-bank lenders in the market we are one of the few lenders left to offer a true asset lend mortgage. We are able to offer this through our finance company, and as we are using retail sourced funds, we are not dependent on any wholesale funder or mortgage insurer. All the loans are approved in house. We will look at a loan to value ratio up to 70% for first mortgages. There is still a demand for this type of lending in the current market. We welcome your enquiries.

Changing Tax Rates

As from 1 April this year our tax rates change. The highest marginal tax rate is reduced from 39% to 38% for incomes over $70,001. The area most affected is in the middle or the 21% tax band. This currently applies between $14,000 and $40,000. This will be moved out to $48,000. There are further changes planned (but not yet definite) for both 2010 and 2011. Again the most significant change signalled is a reduction in the top tax rate to 37%, and an increasing of the middle band cut off from $48,000 to $50,000. These changes are important and will help put more cash in the economy. For a person on $48,000 a year, the changes this year will represent an average after-tax increase in income per month of around $80.

Our current mortgage interest rates are as follows:

Variable rate 7.00%

Six-month fixed rate 6.09
One-year fixed rate 5.89
Two-year fixed rate 6.05
Three-year fixed rate 6.45
Four-year fixed rate 6.60
Five-year fixed rate 6.60

Line of credit facility 7.05

As everyone's personal circumstances are different and the tax treatment of their affairs is always determined by their own circumstances, you should not act on any comments made in our Commentary without obtaining your own independent professional advice.


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