Issue 2016 / 15 26 August 2016
Welcome to the fifteenth fortnightly General Finance Mortgage Commentary for 2016. 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 26 August 2016) the money markets were at the following levels:
Official cash rate 2.00% (unchanged)
90 day bill rate 2.23 (unchanged)
1 year swap rate 2.01 (down from 2.03)
3 year swap rate 1.98 (down from 2.01)
10 year bond rate 2.27 (up from 2.00)
NZ/US dollar 0.7301 (up from 0.7210)
Difficulties for First Home Buyers
Currently we have loan-to-value restrictions in place, where banks can only lend a small proportion of their funds to those wanting mortgages in excess this restriction. There is talk of implementing income caps as well. Both these restrictions adversely impact first home buyers. They overlook one very positive aspect of first home buyers - that they tend to be younger and, as a result, have many years working ahead of them. This group has the advantage of time, to repay their mortgages. A negative impact of this restriction is that it reduces the number of dwellings being built. First home buyers are active in this market - particularly in newer apartment dwellings. If you restrict them, this will cause fewer dwellings to be built and perversely make the housing crisis worse. We must offer the current group of first home buyers, the same opportunities as the previous generation had.
Foreign Trusts
Following the Panama tax haven papers scandal, the Government is proposing to pass a law that will require foreign trusts (benefiting overseas domiciled persons) to be registered. The registration will operate a bit like the Companies Office does. This means that they will have to file an annual return and disclose basic information about the trust. This bill is expected to become law later this year. Those New Zealanders with a family trust, who are domiciled in this country, do not come under the scope of this new legislation.
Current Laws Making it More Difficult to Obtaining a Mortgage
Changes to the Credit Contracts and Consumer Finance Act 2003 and the introduction of the Responsible Lending Code in 2015, placed the onus on lenders, to ensure that borrowers can make payments under the loan without substantial hardship, prior to the loan being advanced. This is sensible and most lenders were doing this anyway, as they want their loan, plus interest, repaid. The problem with this new law is that it has created a reasonably large group of people, who can no longer borrow. These are people with irregular income, overseas income, with unusual sources of income (such as family gifts), those who buy and sell assets when they require income, and those who have undeclared income. They can actually service the loan, but cannot prove it. It should be the lender assessing whether a person can service a loan and not the Government.
Project Finance
If you have a one off project, such as renovating a property, wanting to expand your business purchasing larger items, such as plant and equipment or a boat and you have good equity in your property, we are happy to consider either a first or a second mortgage to meet your requirements. Often people are surprised just how much equity they now have in their property, given the increase in property values over the past three years.
Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the General Finance Limited Loan Administration Department.
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.