General Finance Mortgage Commentary

Issue 2014 /21       21 November 2014 

Welcome to the twenty-first 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 (9 am on 21 November 2014) the money markets were at the following levels:
Official cash rate    3.50% (unchanged)
90 day bill rate       3.67 (down from 3.68)
1 year swap rate    3.76 (up from 3.74)
3 year swap rate    4.03 (up from 4.00)
10 year bond rate   4.06 (up from 4.00)
NZ/US dollar      0.7875 (up from 0.7695)

Restricting Property Investors
The Reserve Bank is considering ways to discourage investors, with multiple properties, from purchasing more, and fuelling the housing market. This is going to be hard to implement, with owners of multiple properties having the option to use various ownership entities, such as companies, trusts and partnerships. It is not unusual for these people to use a variety of funders as well.  Probably the only tool the Reserve Bank can use, is to require a portfolio with a certain level of debt (e.g.$1.5 million) to meet certain LVR requirements, such as 65%.  We think the first thing the Reserve Bank needs to do, is to ascertain exactly how much, if it all, this group is inflating the property market.

House Sales
The LVR restrictions are affecting those who would like to borrow more than 80% to purchase, in most cases, their first property. This can be seen in the house sale figures. House sales were down 2.4% to 6,608 in October compared with 6,767 in the previous year. Median sales prices, across the country, did increase by $10,000 to $430,000, although there is considerable variation among the regions. House sales are likely to remain steady. The good news is that mortgage rates will stay at the current levels for at least the next 12 months. 

Sydney’s Active House Market
We all know that Auckland’s housing market has been particularly active over the past couple of years and the same thing is occurring in Sydney.  Property prices there have increased by 14.6% over the past 12 months. By comparison, prices rose in Melbourne by 6.9% and in Brisbane by 6.7% over the same period. Perth, which is much more dependent on the mining sector, saw prices decreased slightly. Sydney, like Auckland, is proving to be a popular choice for offshore investors. Non-resident investors can only purchase brand new properties and the large second hand market is left to the locals. We believe that a similar law should be introduced into this country. 

Overdue Tax
In some cases, individuals or companies find they have extra tax to pay or outstanding tax with penalties accruing. In many cases banks do not lend for this purpose. This is where we come in - we are happy to consider first or second mortgages to pay outstanding tax. In most cases, our borrowers are able to refinance to a mainstream lender within six to twelve months.

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.