Cairns Lockie Mortgage Commentary
Cairns Lockie Mortgage Commentary
Issue 2009 / 1 13 February 2009
Welcome to the first 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 13 February 2009) the money markets were at the following levels:
Official cash rate
3.50% (down from 5.00)
90 day bill rate 3.60 (down from 5.22)
1 year swap rate 3.00 (down from 4.75)
3 year swap rate 3.65 (down from 5.08)
10 year bond rate 4.50 (down from 4.84)
Kiwi dollar 0.5265 (down from 0.5336)
Mortgage Rates in the New Year
Last December the Reserve Bank cuts the Official Cash Rate by 1.5% from 6.5% to 5.0%. In late January they did the same reducing the OCR to 3.5%. Some further cuts are anticipated this year but not nearly of the same magnitude. The reason for these cuts is to show that the Reserve Bank is serious about reducing the effects of the current recession and to improve liquidity within the system. Most countries overseas are adopting a similar strategy. The effects so far have been only to reduce prime mortgage rates - for other types of lending, such as credit cards, hire purchase, and non-conforming loans, rates are unlikely to change much. Another positive effect of lowering of our interest rates has been the decrease in our exchange rate which will benefit such sectors as exporters and in-bound tourist operators. The key determinant of how our local economy will respond is how high unemployment levels become. If this can stay in the 6-7% range then we may have a relatively soft landing.
Positive Aspects of the Housing Market
While there is plenty of negative media comment about the residential property market in general, there are some positive aspects that should be considered. The affordability of property (that is the cost of servicing your mortgage in relation to your income) has improved. On a $300,000 mortgage a 3.0% decrease in mortgage interest rates represents $9,000 additional dollars in the hand. As mortgage rates drop and house prices have eased, in many cases around 10%, it is becoming easier to buy. The only negative here is that (particularly for first home buyers) a greater deposit is required. Those with rental properties will also benefit from a cut in mortgage rates. At the moment we hear it is getting a little harder to find suitable tenants but if more New Zealanders start to come back, due to the change in economic conditions overseas, this will benefit the rental markets.
The Lending Market
The lending markets, including for residential home buyers, have tightened considerably. It is now harder to get a mortgage. In order to get a lender to say "yes" the key is to provide all the necessary information. This includes pay slips, and proof of deposit (such as term deposit statements). Full disclose on the application form is vital. If a lender discovers anything that has not been disclosed then the application will be declined straight away. It is always harder for self employed people to borrow, so for those who are self employed it is imperative to get company accounts completed. The key regarding obtaining funds in 2009 is to have all the relevant financial information.
Finance Company Lending
Our finance company, General Finance Limited, which operates with a Crown guarantee, has funds available to lend. We are currently looking for well secured loans up to 70% LVR. Most of the loans we are writing are for short term accommodations or bridging type arrangements. The usual term is in the six to twelve month period. For good quality proposals we are prepared to capitalise interest. It should be noted we are one of the few companies in the market writing these sorts of transactions. We understand the banks are not keen and other sources in the past for these types of loans such as mortgage trusts, solicitors nominee companies and the plethora of finance companies are no longer there.
Our current mortgage interest rates are as follows:
Variable rate 7.00%
One-year fixed rate 5.89
Two-year fixed rate 6.05
Three-year fixed rate 6.45
Four-year fixed rate 6.60
Five-year fixed rate 6.60
Line of credit facility 7.05