Cairns Lockie Mortgage Commentary - 5 Dec 2008
Cairns Lockie Mortgage Commentary
Issue 2008 / 22 5 December 2008
Welcome to the twenty-second and final 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 5 December 2008) the money markets were at the following levels:
Official cash rate
5.00% (down from 6.50)
90 day bill rate 5.22 (down from 5.80)
1 year swap rate 4.75 (down from 5.28)
3 year swap rate 5.08 (down from 5.56)
10 year bond rate 4.84 (up from 5.60)
Kiwi dollar 0.5336 (down from 0.5411)
Massive Interest Rate Cut
Yesterday the Reserve Bank announced an unprecedented cut of 1.5% in its Official Cash Rate which was reduced from 6.5% to 5.0%. This follows overseas trends in rapidly cutting cash rates to assist in reducing inflationary pressures and to help alleviate some of the problems associated with the international credit crisis. The immediate effect was many lenders reducing their mortgage rates. By world standards we still have a high official cash rate, which means further cuts are likely. Our rate at 5.00% is still above Australia's rate of 4.25%, the UK rate of 3.00% and 1.00% in the United States. Markets commentators here are predicting further cuts in the New Year of between 1.0 and 1.5%.
Finance Company Guarantee
General Finance Limited is one of the small number of finance companies to receive a Crown Guarantee. What does this mean? For our investors it means their investments have the guarantee of the Crown 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. General Finance Limited had to show it was fully compliant with its trust deed. The purpose of the guarantee is to restore confidence into the investment markets and to offer a degree of financial protection to the investing public. For us and any finance company receiving the guarantee, it is good news but it is just business as usual. We will continue to lend purely on residential real estate - we do not lend on property developments, sub-divisions or commercial property. We believe it now easier to write quality lending proposals, as there is less competition in our sector. This good news for our depositors.
Finance Company Investments May Regain Popularity
One of the downsides of the falling cash rate is that the interest rates investors receive are also reducing. Prime secured Government stock rates were around 8% a year ago but are now around 5%. Further cuts are expected in the New Year and Government stock rates may go under 4%. After deducting tax and taking inflation into account there is not a lot left over. At rates of 8 - 9%, finance companies are again looking an attractive alternative. Given the Crown Guarantee, considerably stricter supervision by the regulators, trustees and auditors, and the general tightening of lending policies, the remaining finance companies are starting to look attractive as alternative investments
We Have Funds to Lend
Our finance company, General Finance Limited has funds to lend. We are particularly interested in bridging or short term advances. We are one of the few players in the market offering true bridging mortgages. Our maximum loan size is around $300,000 and we can advance up to a 70% loan to value ratio. Preference is given to first mortgages but we will consider sound second mortgages. All lending is secured over residential properties. For further information please do not hesitate to contact one of our lenders.
As this is our last newsletter for the year, we wish everyone a Merry Christmas and a happy New Year. Our next newsletter will be on 13 February 2009.
Our current mortgage interest rates are as follows:
Variable rate 8.25%
Six-month fixed rate
One-year fixed rate 7.09
Two-year fixed rate 7.30
Three-year fixed rate 7.65
Four-year fixed rate 8.05
Five-year fixed rate 8.09
Line of credit facility 8.30