General Finance Mortgage Commentary #18 / 2011

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Mortgage Commentary 18 / 2011

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General Finance Mortgage Commentary

Issue 2011 / 18 7 October 2011

Welcome to the eighteenth 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.

The Money Market

This morning (9 am on 7 October 2011) the money markets were at the following levels:
Official cash rate 2.50% (unchanged)
90 day bill rate 2.83 (unchanged)
1 year swap rate 2.90 (down from 2.92)
3 year swap rate 3.25 (down from 3.30)
10 year bond rate 4.40 (up from 4.32)
Kiwi dollar 0.7631 (down from 0.7803)

The NZ Credit Rating Downgrade

Last week New Zealand Inc was downgraded from AA+ to AA by the main rating agencies such as Fitch Ratings and Standard & Poor’s. This is serious, as outsiders clearly view New Zealand as being a higher risk country to which to lend money. The reason for the downgrade was two fold - an increase in Government debt and the Government not projecting a plan on how to curtail this. The immediate effect was that our currency dropped 4 - 5% against the US dollar. It will be more costly for New Zealand to borrow. We do not see this affecting mortgage rates in the short term. If the Australia banks are downgraded a notch, then mortgage rates could rise by a quarter to half a percent in both countries. Although an AA rating is still relatively good, it is not as good as it was a fortnight ago.

Auckland Rating Valuations

Auckland Council has confirmed that the new rating valuations will be posted out to households in the week commencing 24 October (that is the week of Labour weekend). From preliminary information released, the areas with the largest valuation increases are those in the old Auckland City boundaries, such as Grey Lyn / Westmere up 18%, Kingsland / Sandringham up by 13% and Mt Eden / Epsom up by 10%. The North Shore remains pretty much static, with very little in the way of movements either up or down. The old Waitakere Council areas fall between 1 - 3% across the board. Manakau has a few increases but the variances are small. The interesting aspect will be how these new valuations impact on rates. Home owners can object to the new valuations and have until 16 December to do so. Typically, by far the greatest majority just accept their new valuations.

Kiwisaver
Last newsletter we discussed that when Kiwisaver becomes larger, it should become a provider of non-bank locally sourced mortgage funds. Another role it could have in the future is providing reverse annunity mortgages - that is where asset rich but cashflow poor retired can take out a mortgage that is repaid from their estate. It essentially allows superannuitants to have a higher cashflow during their retirement years. The banks have not been keen to enter this market and a few smaller players have been expensive and relatively unsuccessful. The reasons are varied, but the main one for a lender is that some of these loans may stay on their books for a considerable number of years. These long term mortgage assets are ideal investments for superannuation funds such as Kiwisaver. Reverse annuity mortgages is an asset class our Kiwisaver providers should be participating in when they get larger.

General Finance Lending Changes

We have enhanced some of our finance company lending criteria. While are short term lenders, we are now prepared to lend up to two years. We also have a special on our lending rates - they now range from 11.95 - 12.95% (until end November 2011). We are prepared to look at larger loan amounts up from $450,000 to $700,000. We are still residential lenders but our definition is reasonably wide - it does include lifestyle and rural blocks. If you have an asset lend, lo doc or bridging type loan, we look forward to hearing from you.

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 (below).

Regards
William Cairns
James Lockie

General Finance Limited
638 Great South Road, Ellerslie, Auckland, 1051
PO Box 74-212, Greenlane, Auckland, 1546
Telephone (09) 526 2000
Facsimile (09) 579 7795
Website http://www.general.co.nz

Residential Mortgage Lenders:

William Cairns mailto:wcairns@general.co.nz   (ddi 09 526 7801)
Glyn Slade        mailto:gslade@general.co.nz                (ddi 09 526 7802)
Paul Lange       mailto:plange@general.co.nz    (ddi 09 526 7805)
Maria Stoatt      mailto:mstoatt@general.co.nz   (ddi 09 526 7806)

Loan Administration and Customer Care:

Lyn Everall mailto:leverall@general.co.nz (ddi 09 526 7808)
Tony Chappell mailto:tchappell@general.co.nz (ddi 09 526 7803)
James Lockie mailto:jlockie@general.co.nz (ddi 09 526 7800)

The sending of this message has been authorised by James Lockie at General Finance Limited, who can be contacted at 09 526 5000 or at jlockie@general.co.nz

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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.