General Finance Mortgage Commentary

Issue 2013 / 15 30 August 2013

Welcome to the fifteenth 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 (9am on 30 August 2013) the money markets were at the following levels:
Official cash rate 2.50% (unchanged)
90 day bill rate 2.70 (up from 2.64)
1 year swap rate 2.90 (down from 2.98)
3 year swap rate 3.82 (down from 3.90)
10 year bond rate 4.51 (up from 4.48)
NZ/US dollar 0.7833 (down from 0.8050)

Leasehold Land
We are seeing reports in the media about people facing large ground rentincreases when these are being reviewed, often every seven or twenty oneyears. Buyers must be fully aware of what leasehold land is all aboutwhen purchasing it. The second aspect, is not to pay too much for it, asyou are purchasing only a right to occupy the land (and the dwelling)but not purchasing the land itself. We suggest, that if you arepurchasing a property on leasehold land, then you obtain independentvaluation advice from a valuer so you fully understand it and you do notpay too much for it.

Trusts are Getting Harder
Anyone who has a family trust, owning more than just the family home,will have noticed that their bank is asking a lot more questionsincluding who are the beneficiaries and the identity of the trustees.There is now more administration required when dealing with a trust.There is still a demand for those acquiring investment assets, that theybe held in a different entity to their own name. This can be still doneand a company structure may now be more appropriate. If you areconsidering using either a trust or a company to hold investment assets,it is important to obtain legal or accounting advice to ensure that youhave the right structure.

Solution to the Auckland Property Market
There is considerable debate about putting some form of lendingrestrictions in place to try and slow down the Auckland property market.One idea that Singapore has recently adopted is that non-residents andnon-citizens can only purchase brand new properties. Auckland has ashortage of properties, and if we adopted what Singapore is doing, wemay well encourage more development and building, which is good for theeconomy. We would remove about 5% of the buyers from the existinghousing stock which would assist first time local buyers. This idea isworth considering.

Borrowing after the Divorce
In many cases, during a divorce, your credit rating suffers, as oneparty says they will pay the mortgage, credit card and the personalloans but does not do so. As a result defaults are registered againstyour credit report, making it harder to obtain credit, such as amortgage. This is one type of lending that we are doing. We areproviding short term loans, so a post-divorce person, with an impairedcredit report, can get back on their feet. In many cases, after twelvemonths and with a good repayment history, they are in a position toreturn to a mainstream lender.

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.