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Issue 2013 / 2 28 February 2013Welcome to the second fortnightly General Finance Mortgage Commentary for 2013. 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 28 February 2013) the money markets were at the following levels: Official cash rate 2.50% (unchanged) 90 day bill rate 2.67 (unchanged) 1 year swap rate 2.78 (down from 2.80) 3 year swap rate 3.16 (down from 3.18) 10 year bond rate 3.74 (down from 3.86) NZ/US dollar 0.8270 (down from 0.8488) Loan to Value Ratio Restrictions The Reserve Bank is considering restricting the amount that lenders can advance on residential property, to 85% or 90% of the property’s value. It is interesting that they are even considering this option. This move will most likely hurt first home buyers, who are trying to borrow as much as possible to get into their first homes. Investors, to whom this is probably targeted, generally own more than one property, and are lower loan-to-value ratio borrowers. Most investors do not borrow 85-90% on a number of properties, as cash flows just do not support this level of borrowings. Frankly most recognise this as just being too risky. This proposal will ultimately hurt those it is designed to protect - higher leveraged first home buyers and those wanting to borrow right up to maximum on their homes in order to say purchase a business or to acquire plant and equipment to make their enterprises more profitable. A Solution That May Work An alternative that may work, is to increase the amount of capital that lenders are required to hold when they lend over a particular class of asset. For example, on home loans with loan-to -value ratios of 80% or less, banks have a risk weighting of 35%, in their Capital Ratio calculation. This rises to over 100% for commercial property loans, meaning they have to hold more than three times as much capital. An easy way to slow down residential lending is to make the banks hold more capital for this particular class. As a result, other forms of lending such as business, plant and equipment and rural loans would become more attractive lending propositions. This would be better for the economy. Insurance Issues Since the Christchurch earthquake, household insurance has not only become more expensive, and harder to obtain, but insurers are asking more questions. If you are purchasing a property you just cannot leave obtaining insurance to the day before settlement. If the insurer wants more information - for example on a property built before 1940, they may require a wiring certificate. It is best to address your insurance issues well before settlement rather than holding this up, as you will be inconveniencing not only yourself but other parties as well. If you have problems obtaining insurance, why not ask the vendor which insurer they used, as their insurer already knows the property. Our Deposit Rates Due to an increase in our business activity we are looking for funds i.e. deposits. We are one of only a handful of finance companies that can receive funds from the general public. Our rate is 6%. This is around 50% higher than bank deposits. We are able to pay investors either monthly or quarterly. We welcome your enquires and are more than happy to forward you a prospectus. 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. |