Cairns Lockie Mortgage Commentary 11 April 2008
Cairns Lockie Mortgage Commentary
Issue 2008 / 5 11 April 2008
Welcome to the fifth 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 11 April 2008) the money markets were at the following levels:
Official cash rate
90 day bill rate 8.86 (down from 8.96)
1 year swap rate 8.67 (up from 8.63)
3 year swap rate 8.01 (up from 8.00)
10 year bond rate 6.48 (up from 6.38)
Kiwi dollar 0.8000 (down from 0.8045)
Comments by the Reserve Bank
A recent survey by the Institute of Economic Research shows that business confidence is the worst since the oil crisis of 1974. Most businesses are expecting economic conditions to deteriorate. According to the Institute, the current results are worse than at any time during the Asian crisis, the recession of the early 1990's or the stagflation of the early 1980's. The Governor of the Reserve Bank has responded saying the economic fundamentals and the credit worthiness of our economy remain sound. He also says that businesses should adopt a cautious approach rather than going into hibernation. This was an interesting comment but as yet there is no mention of lowering our interest rates as has recently occurred in both the USA and the UK. The advantage that this country does have, is that if a recession develops we can drastically cut our interest rates. We believe that this should happen sooner rather than later in order to restore some confidence in the economy.
Selling Off State Houses
The Government is announcing that it is selling fifteen expensive state houses in the Auckland area for around $12 million. This makes sense. By selling each of these expensive homes the Government should be able to build at least two but probably three new dwellings to replace them. There is a housing shortage for state tenants and this is the way to assist in solving it. The good thing is that no new money is required – we are essentially managing the stock better. As with all property management decisions it is just not enough to keep buying - having a selling strategy in place is appropriate as well.
A Reason That Houses are Expensive in this Country
The Master Builders Federation recently made an interesting comment on one of the reasons why housing affordability is decreasing in this country. They say that New Zealanders like to individualise their new homes. It says 90% of Kiwis tend to own their sections before they build and then they purpose-build. Only around 10% of new homes in this country are subject to a standard housing package, whereas this is closer to 50% in Australia and around 90% in the USA. As a result, this individualisation of new homes tends to considerably increase the cost of building. One of the ways to help increase housing affordability is to stick with standard plans and have as few changes as possible.
Our Low Doc Lending
Low doc lending has proved popular in this country as it gives the self employed, who have traditionally found it more difficult to borrow than wage and salary earners, the opportunity to purchase their own homes and build up rental property portfolios. They are able to do this by self declaring their incomes. The banks, who were late starters in this market, appear to be withdrawing from it but we at Cairns Lockie are still offering our popular 80% lo doc product. We also offer a no doc 55% product where the borrower has only to certify that they can afford the loan. We view lo doc lending as a useful tool in assisting certain types of borrowers and we look forward of being of assistance.
Our current mortgage interest rates are as follows:
Variable rate 10.40%
No Financials Home Loan 11.00
Jumbo Loan 10.40
fixed rate 10.28
Two-year fixed rate 9.84
Three-year fixed rate 9.74
Five-year fixed rate 10.54
Line of credit facility 10.50