Issue 2014 / 13   1 August 2014

Welcome to the thirteenth 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 afternoon (4.00 pm on 31 July 2014) the money markets were at the following levels:
Official cash rate    3.50% (up from 3.25)
90 day bill rate       3.70 (up from 3.65)
1 year swap rate    3.89 (unchanged)
3 year swap rate    4.25 (down from 4.32)
10 year bond rate   4.27 (down from 4.38)
NZ/US dollar      0.8505 (down from 0.8694)

Our New Prospectus is Out
General Finance receives deposits from the public. Our new prospectus, for 2014, has just been registered and is now being printed. This is important to us. This is our primary disclosure document for existing and new investors. It details our financial results, our residential lending policies and the risks involved in our business. If you or any of your friends or clients have funds to invest and are looking for rates higher than those being offered by the banks, then we may be your answer. Please call us for a prospectus or download a copy at http://www.general.co.nz/prospectus.htm

LVR Restrictions May be Going
Currently New Zealand has loan to value restrictions imposed by the Reserve Bank for those wanting to borrow more than 80% on a residential property. There is no doubt that this restriction is having an effect in slowing down the residential property market, particularly in Auckland. The Reserve Bank has hinted that it may look at removing this requirement and it may happen by year end.  We view this positively, as this restriction has been unfairly impacting on first home buyers.

Building Consents Continue to Increase
For the quarter ended June 2014, building consent approvals continued to increase.  In the past year, in Auckland alone, 6,827 new building consents were issued. This is positive, but it is still well below the 9,000 needed each year just to keep up with our population growth. New housing builds have a strong flow on effect for the economy and create a large number of new jobs in a variety of work sectors.

Rate Increase
Last Thursday the Reserve Bank increased the OCR to 3.50% - that is a full 1% increase for the year. Our interest rates have been, for sometime, the highest amongst the OECD countries. Predictability, floating rate mortgage rates have increased.  The question is, where to from here? It is very hard to justify any further increases. Our exchange rate is high, which is negatively impacting on our exporting sector, and any further rate increases will just push this up further. Returns from dairying are going to be quite a bit lower over the next 12 months which will have an impact on our economy (particularly the rural centres) and our unemployment remains steady at around 6%. All this does not point to a booming economy. We think that this will be the last rate increase for the year. 

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.