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Cairns Lockie Mortgage Commentary 30 August 2007

Cairns Lockie Mortgage Commentary

Issue 2007 / 15 30 August 2007

Welcome to the fifteenth fortnightly Cairns Lockie Mortgage Commentary for 2007. 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

The Money Market

This morning (8am on 30 August 2007) the money markets were at the
following levels:

Official cash rate 8.25% (unchanged)
90 day bill rate 8.68 (down from 8.94)
1 year swap rate 8.46 (down from 8.63)
3 year swap rate 8.02 (down from 8.18)
10 year bond rate 6.28 (up from 6.23)
Kiwi dollar 0.7036 (up from 0.6897)

Credit Crunch

Over the past month the financial landscape has changed. What we are seeing is a classic credit crunch, where liquidity or cash is in short supply. This is due to falling levels of foreign money coming into this country, and people and the banks holding on to their cash. The immediate effect is a drop in cash inflows into the likes of finance companies, mortgage trusts and the increasing difficulty for corporates to fund their corporate notes and bonds. In the medium term, credit standards will toughen up and it will become more difficult to get mortgage and hire purchase finance. The cost of hire purchase will rise. Longer term it may affect the level of retail sales and jobs in that sector.

Our Funding Sources

Cairns Lockie Limited is a non-bank largely prime rate lender. We have two principal funding sources, one through AMS or AFIG which is owned by the second largest company in the world, General Electric or GE. This company has a triple A rating, which is higher than any bank in New Zealand. Our second funding source is through Origin which is 100% owned by this countries largest bank, ANZ/ National. Our borrowers and introducers of business can be assured that our wholesale funding is coming from the most secure of sources.

Housing Market is Cooling

One of the factors that has kept our housing market firm over the past five years has been inward migration. This is changing. In July of this year we had a net gain of only 440 new immigrants, well down on 1,400 over the same period last year. If this trend continues we will expect to see around 5,500 new arrivals for the year, well down on 9,450 last year. Our peak year for migration, over the past ten years, was 2003, when 42,500 net new arrivals came to this country. Our lower migration is largely due to an increase in the number of Kiwis going to Australia. The positive aspect of lower migration is that it takes the pressure off the housing market - which in time may lead to lower mortgage rates. The negative aspect is we do have a skills shortage in a number of areas -lower immigration will make this worse.

Property Market in Christchurch

We hear a lot about the property market in Auckland and in the capital but over the past two years the Christchurch market has been rising steadily, according to Bayley's Research. The median house price to March 2007 was $320,000, well up on the previous year of $285,000 and the year before at $246,000. Fendalton, a suburb next to the city centre, has a median price of $600,000 up by 26% on the price of two years previously $476,000. Sumner is popular seaside suburb, which is close to the city. It has a median price of $505,000, up by 20% on two years ago at $420,000. Rangiora, a popular area for lifestyle blocks, now has a median price of $278,000 up by 29% on two years previously.

Our current mortgage interest rates are as follows:

Variable rate 10.20%

No Financials Home Loan 10.80

Jumbo Loan 10.20

One-year fixed rate 9.75
Two-year fixed rate 9.39
Three-year fixed rate 9.39
Five-year fixed rate 9.42

Line of credit facility 10.05

William Cairns
James Lockie


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