Cairns Lockie Mortgage Commentary
Cairns Lockie Mortgage Commentary
Issue 2008 / 2 29 February 2008
Welcome to the second 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 29 February 2008) the money markets were at the following levels:
Official cash rate
90 day bill rate 8.88 (up from 8.81)
1 year swap rate 8.75 (down from 8.84)
3 year swap rate 8.23 (down from 8.35)
10 year bond rate 6.37 (down from 6.40)
Kiwi dollar 0.8160 (up from 0.7890)
Mortgage Rates and the Banks
Over the past few days we have seen the major banks increasing both their floating and fixed home loan rates. This is due to the increase in the cost of funding. Over the past ten or so years lenders have typically altered their rates when the Governor of the Reserve Bank has altered the official cash rates, to either tighten or loosen monetary policy. Mortgage Managers such as ourselves, who rely on the wholesale capital markets for all our funding, have been progressively increasing our rates over the last month or so. That is why our rates were around half a percent higher than the banks. This is about to change, as banks are now largely funded from the wholesale capital markets as well. The banks then have two choices, decrease their margins or increase their mortgage rates. They are taking the latter option and increasing their rates. We will start to see rates narrowing and become virtually the same as the non bank lenders.
The reason for interest rates rising is that the cost of credit has increased. This has been due to the sub prime crisis in the United States, increasing volatility in the share and financial markets and investors such as fund managers requiring higher returns. As a result mortgage rates have increased, but in addition these same investors are now requiring greater security. This means it is getting more difficult to fund higher risk projects such as section subdivisions, commercial property developments and other speculative ventures. A lot of this lending was done by finance companies, but this sector has all but stopped any new lending and is even declining rollovers and renewals of existing facilities. We expect this trend to continue this year. Our introducers can assist their clients here, explaining that the markets have tightened, and that all lenders will be requiring more information and so approvals may take a little longer. If borrowers are aware of this, we find most are willing to co-operate.
Housing Consents Slowing
Statistics New Zealand has advised that 1,743 new residential dwelling consents were issued last month, a 7.3% drop from 1,880 this time last year. A regional breakdown shows that Auckland had 456 residential new dwelling consents in January unchanged from the previous year. The Canterbury region experienced an increase whereas the Wellington region had a decrease. The figures do not point to any major decrease in residential dwelling consents, but over the past year numbers are down slightly. The real test will be over the next six months, as the slower economy, lower immigration and tighter lending criteria by funders, begin to be felt.
Identity Thief and Fraud
When borrowers and investors are dealing with various types of financial organisations, such as applying for mortgages or opening investment accounts, they must provide, at the time of the transaction, adequate information to confirm who they are. Copies of a driverâ€™s licence and/or a passport are now virtually mandatory. Other jurisdictions such as Australia, USA and UK are even tougher than us. The reasons are several; fraud is on the increase and in particular identity fraud, where another personâ€™s identity is used to commit a crime. Secondly anti-money laundering laws are becoming a lot stricter. It is an impost on the users of financial institutions but if borrowers and investors are aware of these requirements and the reasons why, then it just becomes part of the process of obtaining a mortgage, a loan, or opening a bank or investment account.
Our current mortgage interest rates are as follows:
Variable rate 10.40%
No Financials Home Loan 11.00
Jumbo Loan 10.40
One-year fixed rate 10.13
Two-year fixed rate 9.84
Three-year fixed rate 9.74
Five-year fixed rate 9.94
Line of credit facility 10.50