Issue 2014 / 3   14 March 2014

Welcome to the third fortnightly General Finance Mortgage Commentary for 2014.  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 14 March 2014) the money markets were at the following levels:
Official cash rate    2.75% (up from 2.50)
90 day bill rate       3.08 (up from 2.96)
1 year swap rate    3.60 (up from 3.47)
3 year swap rate    4.19 (up from 4.09)
10 year bond rate   4.61 (up from 4.51)
NZ/US dollar      0.8559 (up from 0.8320)

Interest Rate Outlook
Yesterday the Reserve Bank increased the official cash rate from 2.50% to 2.75%. This is good for those with cash deposits at a bank or with finance companies (such as ourselves). It is not good for those with mortgages, as floating rate mortgages will increase by at least 0.25%.  We believe this rate rise is premature. Housing markets are only strong in Auckland and Christchurch. In the rest of the country they are reasonably flat.  With our interest rates the highest in the OECD, and with a growing economy the OCR increase will predictably increase our exchange rate – this is bad for our exporters. Is our economy as strong as some say? Our unemployment figures suggest otherwise - we still have 6% of our work force unemployed and in some provincial areas this is around 10%. We believe the Reserve Bank has increased its rates too soon and should have waited until the recovery is fully underway and unemployment has dropped further.  

Property Price Rises Over the Past 12 Months
According to Quotable Value, property values from February 2012 to February this year have increased by 9.3% nationwide.  They are 13.1% above the previous peak in late 2007. However, these are averages, and there are significant regional differences. Two markets in general have seen strong growth - Auckland at 14% and Christchurch at 11%.  Hamilton’s price growth is 5.4% and New Plymouth is 5.7%. Most other provincial areas and Wellington have experienced little growth - Wellington at 2.9%, Napier at 1.0% and Dunedin at 1.7%. Growth rates are likely to be less over the next twelve months due to higher interest rates and the loan to value restrictions.

 LVR Restrictions Are Having an Effect
The loan to value restrictions, which were brought in by the Reserve Bank late last year, are influencing the market. Predictably it is affecting first buyers, who are in the under $400,000 part of the market. This is a pity, as this is the very group we want to encourage to purchase their own homes. According to the NZ Property Investors Federation, it is affecting another group - some property investors. These tend to be the more highly geared ones, who are in their active phase of acquisition.  It will have no impact on overseas buyers at all, as they normally have larger deposits. 

Asset Lends
We are lending on a number of standard asset lend and low doc propositions. For example, we are seeing people come to us who have returned from overseas, often with quite large deposits, with the intention of staying here and buying a house.  They have not yet found jobs but have found a property to purchase, and want to get on with the next stage of their lives.  These are good loans for us, as we can advance funds for 6 - 9 months, by which time they will have found jobs, and can easily refinance 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.