Issue 2014 / 10   20 June 2014

Welcome to the tenth 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 20 June 2014) the money markets were at the following levels:
Official cash rate    3.25% (up from 3.00%)
90 day bill rate       3.58 (up from 3.45)
1 year swap rate    3.88 (up from 3.68)
3 year swap rate    4.33 (up from 4.14)
10 year bond rate   4.43 (up from 4.35)
NZ/US dollar      0.8717 (up from 0.8496) 

Interest Rates
Last week the Governor of the Reserve Bank increased our OCR to 3.25%, which is the highest rate in the OECD. It is interesting that, earlier this month, the European Central Bank did the opposite, and decreased their rates from 0.25% to 0.15%, meaning their interest rates are practically at zero. Predictably, our currency has increased markedly against our major trading partners.  This is bad for our exporting sector. Floating mortgages in this country, will increase as well.  Is all this warranted? Our commodity prices are starting to ease, house sales volumes, particularly in Auckland, are slowing and if you go to a number of provincial towns, it certainly does not feel like boom time. We feel that further increases are not justified. 

Housing Turnover
Auckland house sale volumes dropped by 14% in May to 1,109 from 1,284 a year earlier. April too, had fewer sales than the corresponding month the previous year, although this was partly due to two sets of public holidays, being Easter and Anzac weekend. The median sale price for May was $645,000, up by 13.16% on the same time last year. Lower sales volumes are expected to continue for the next three months, as we enter the winter season, which is traditionally slower. 

Trust’s Administration Getting More Complicated
The administration of trusts is getting more complicated. If a trust is receiving an income, be it business income, or rents, it is required to complete an IR 10 along with its normal tax statements.  This is essentially a financial statement including a balance sheet. The IRD says the IR 10 is designed to collect information for statistical purposes.   Many trusts, of which we are aware, only own the family home and generate no income. They can probably continue to do a nil return.  As this new form is effective for the 2013/4 year, we suggest all those with trusts, to talk with their accounting and/or tax advisors.

Have a Tax Problem
This time of the year many of us are either, completing tax returns, thinking about it or paying provisional tax.  Some of us may actually owe tax and are considering how it is to be funded. Many mainstream lenders are reluctant to increase a borrower’s mortgage advances just to pay outstanding tax.  At General Finance, we are happy to look at this, either through a first or second residential mortgage advance. If repayments are made on time, in most cases, our mortgages will be refinanced by a mainstream lender at a lower rate. This is worth thinking about, if you have outstanding tax to pay.

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.