Cairns Lockie Mortgage Commentary 23 April 2009
Cairns Lockie Mortgage Commentary
This is our regular Friday fortnightly newsletter but due to staff holidays on Friday is being sent out today.
Issue 2009 / 6 23 April 2009
Welcome to the sixth fortnightly Cairns Lockie Mortgage Commentary for 2009. 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 27 April 2009) the money markets were at the following levels:
rate 3.00% (unchanged)
90 day bill rate 3.00 (down from 3.24)
1 year swap rate 3.08 (down from 3.23)
3 year swap rate 4.20 (down from 4.48)
10 year bond rate 5.30 (unchanged)
Kiwi dollar 0.5670 (down from 0.5788)
Interest Rates Again
This coming Thursday the Reserve Bank will review the Official Cash Rate. Despite the recent large decreases in the OCR we still have high interest rates compared with the rest of the world. Our and Australia's official cash rates are 3% compared with 0.25% in the USA, 0.50% in the UK, and 0.10% in Japan. The world economies are continuing to slow, inflation in the short term is falling and our currency has improved over the past two months - this gives the Reserve Bank the scope to lower interest rates again. Consensus opinion is favouring half a percent drop. This may not have much effect as mortgage rates are expected to remain much the same as banks funding costs are still increasing. For investors, call rates will decrease but term deposit rates are expected to remain unchanged, as there is still competition among financial institutions for medium term funds.
As the trading banks continue to tighten their lending policies, one area of finance for which there is still a demand is bridging finance. This is short term accommodations, often for as short as a few weeks, to 12 -18 months. Most people looking for this type of finance are looking at selling some assets, wanting time to reorganise their finances so in the medium term they can go to a prime rate financier. This also includes bridging facilities on first mortgages for "asset lends and lo doc” types of transactions as well. Our maximum loan to value ratio here is 70%. We understand we are one of the few players in the market offering these types of lending products.
Why the Market is Different to the USA
In our last newsletter we discussed the areas in which our housing market is different to the USA. We saw there is no real oversupply of properties here, as there is in the USA. We did not have a large sub prime mortgage sector and our mortgage rates were higher. The lowering of mortgage rates here is having a proportionally more positive effect in this country. Another difference is that we do not have a history of deeply discounted longer term honeymoon rates. They were here but the discounts were small and for short durations such as six months. They had little impact here, whereas in the USA they gave a number of borrowers the view that they could afford a mortgage when actually they could not. In the USA there are not the usual break costs with fixed rate mortgages as there are here, so it was much easier to refinance in that country taking out bigger and bigger loans as your properties increased in value. As a result of these differences our housing market will react differently and probably recover more quickly to that in the USA.
We continue to operate our finance company, General Finance Limited, which has a Crown Guarantee on deposits until 12 October 2010. (Details about the Crown Guarantee can be found on the treasury's website at http://www.treasury.govt.nz/economy/guarantee.) Demand for funds (that is borrowers) has increased recently which is positive. We have noticed that the quality of the lending applications received is improving and we are writing more first mortgages. Most are of a bridging nature. We continue to accept deposits, our rates and investment statement can be found on our website at www.general.co.nz. Most of the countries’ papers publish finance company deposit rates at least on a weekly basis.
Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the Cairns Lockie Limited Loan Administration Department (below).