Cairns Lockie Mortgage Commentary 21 Nov 2009
Issue 2009 / 21 20 November 2009
Welcome to the twenty-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 (8am on 20 November 2009) the money markets were at the following levels:
Official cash rate -- 2.50% (unchanged)
90 day bill rate -- 2.78 (down from 2.80%)
1 year swap rate -- 3.35 (down from 3.45)
3 year swap rate -- 4.95 (down from 5.03)
10 year bond rate -- 5.95 (down from 6.03)
Kiwi dollar -- 0.7380 (up from 0.7212)
There is No Mini-Boom
We agree with the comments made earlier this week by the General Manager of First National Real Estate that there is not another housing mini-boom in progress. What we are seeing is homes in good suburbs and desirable properties for first home buyers selling reasonably well. We are not seeing a mad rush for rental properties, high value properties, holiday homes, sections or inner city apartments. In most holiday places such as the Far North, Taupo and Queenstown there are a plethora of properties for sale. Demand for properties is being held back by the conservative lending practices of the banks. It is still difficult to get a mortgage in excess of 80% (of a propertys value) and all asset-lend products have gone. What we can say is that the market is recovering in certain areas but we are most certainly not in a mini-boom.
A Capital Gains Tax is Wrong
There is considerable talk in the press about implementing a capital gains tax on residential property. The problem with this is that it is hard to target a single asset class. For example an individual has four investment choices, to buy a residential rental property, a commercial property, a business or a portfolio of shares. Lets say they are all purchased in a loss attributing company (LAQC) and the investments are geared (i.e. borrowed funds are used). All investment classes perform well and are sold at the end of five years. Why should a residential property investor pay a capital gains tax and none of the others have do? Buying a rental property is a business venture and it should just be treated like any other business venture and be free from a capital gains tax.
Attractive Investment Returns
Our subsidiary company, General Finance Limited, is taking deposit funds. It offers investors a competitive rate of 8.85% for a three year term. All investors are secured under a trust deed. These funds are then lent on residential properties, with either a first or second mortgage taken as security. We have advanced virtually no second mortgages this year. Over 80% of the loans written by the finance company are residential first mortgages. This trend will contine. In many ways we are operating more like a building society than a traditional finance company. The funds are lent for short term uses only, mostly up to 12 months, and mainly as bridging type loans.
Property Partnerships a Smart Way to Home Ownership
As house prices continue to rise, particularly in Auckland and Wellington, it is becoming increasingly difficult for single people to purchase a dwelling. One hundred percent, no deposit mortgages, or even 95% low deposit home loans have all gone. Another alternative for two people, be they friends or siblings, is to form a property partnership. This way you are pooling two deposits, two incomes and two people to work on the property. It is important that these types of arrangements are formalised with a partnership agreement. This discusses such things as the duration of the partnership and how it will be dissolved. The advantage is that if a property is held for say 5 years and has appreciated by 40% when it is sold, each partner will walk away with considerably more money than they started with - which will make it easier for them to purchase their next property.
Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender or the Cairns Lockie Limited Loan Administration Department: http://www.emortgage.co.nz/newsletters.htm