Issue 2011 / 4   25 March 2011

Welcome to the first fortnightly General Finance Mortgage Commentary for 2011.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general.  Previous issues of this commentary can be found on our website http://www.general.co.nz/newsletters.htm

The Money Market
This morning (9am on 25 March 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.63 (down from 2.67)
1 year swap rate    2.73 (down from 2.86)
3 year swap rate    3.73 (down from 3.74)
10 year bond rate   5.58 (down from 5.62)
Kiwi dollar         0.7485 (up from 0.7375) 

Auckland Property Market is Expected to Outperform
So far this year we have seen strong rental demand for Auckland houses and we are aware that new home construction has slowed dramatically. Auckland is growing at the size of Christchurch every 10 - 12 years. The Government is talking about the rebuilding of Christchurch but we also have to add another Christchurch to this city. Housing is one area which is going to be difficult to provide for. Added to this, if petrol prices continue to increase and people want to live closer to their places of work, this will translate into even higher demand for more centrally located properties. As a result we will see the price of houses in Auckland starting to rise again.    

More on Insurance
Over the past few weeks we have been focussing on insurance in the aftermath of the Christchurch earthquake. If you are a landlord with some rental properties, there are some additional useful features you can purchase with your household insurance. Two add-ons which some companies provide, is for loss of rental and to cover the risk of tenants vacating early. Loss of rental applies, when for some reason, a rental property becomes uninhabitable such as due to an earthquake or a flood. In this case the insurance company will pay loss of rental for a period of up to six months. We understand that this extra cover is not particularly expensive.  To cover the risk of a tenant vacating (without giving notice or providing inadequate notice) can be useful but it does cost more. We suggest when you are next reviewing your insurances with your advisor or company you may wish to discuss these additional covers with them.

Mortgage Rates in the UK
Last fortnight we reviewed mortgage rates in Australia, which are higher than those in this country. This time we are looking at rates in the UK, which are lower than in New Zealand.  There are some differences between the two markets.  The UK has many more honeymoon rates or low introductory rates, which revert to a higher rate after two years. For lower loan-to-value lending, such as loans under 70%, you can obtain lower rates.  There are heavy early repayment penalties on a number of mortgage products in the UK.  A typical mortgage with a loan-to-value ratio of 75%, offers a two year honeymoon fixed rate currently at 3.99%.  Then it will revert to a floating rate. The overall annual percentage rate (APR), which is the important figure, is 5.1%. This is lower than our rates.  

Lo Doc and Asset Lends
Both these products were popular before the global financial crisis.  They have now been withdrawn from the market by all the mainstream lenders. The good news is that we still provide these products through our finance company, as short term and bridging mortgages only. For example, if you are rearranging your affairs (or need to sell some assets) we can assist with a lo doc or asset lend loan from one to eighteen months, to allow time for this rearrangement to occur.  Our maximum loan-to-value ratio is 70%. We are probably the only finance company providing this service. 

Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the General Finance Limited Loan Administration Department.

As everyone's personal circumstances are different and the tax treatment of their affairs is always determined by their own circumstances, you should not act on any comments made in our Commentary without obtaining your own independent professional advice.

General Finance Limited is a Registered Financial Services Provider, with registration number  FSP8882.