Issue 2017 / 1 10 February 2017
Welcome to the first fortnightly General Finance Mortgage Commentary for 2017. 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 10 February 2017) the money markets were at the following levels:
Official cash rate 1.75% (unchanged)
90 day bill rate 2.02 (down from 2.05)
1 year swap rate 2.10 (unchanged)
3 year swap rate 2.60 (up from 2.46)
10 year bond rate 3.20 (up from 3.19)
NZ/US dollar 0.7190 (up from 0.7180)
Direction of Interest Rates
Market sentiment, over the past few weeks, is that the Official Cash Rate (OCR) is unlikely to either decrease or increase during the current year. This does not mean that mortgage rates will not change. Banks are under increasing funding pressure - their main source of funding is offshore and its cost has been increasing. Their alternative is to fund using retail deposits. In order to attract more funds, deposit rates will have to increase from their present 1.0 - 3.5% range. As funding costs are rising, then lending rates will have to increase. Mortgage rates have risen roughly a quarter of a percent so far this year, and are likely to increase by a further half a percent as the year unfolds.
Hard to Increase the Supply
Most people have worked out that the way to ease the pressure on house prices, is to increase the supply. It is that simple, but it is difficult to achieve. If you have recently tried to engage builders, electricians, or plumbers to carry out a simple building project on your own home, you will have found that they are difficult to source. To build more houses, we need our immigration policy to target people with those skills (including New Zealanders living offshore who may want to return home). Some inducements for them to return will have to be made. Currently our politicians are saying they are going to build more houses, but this just cannot be done with the existing skilled labour force.
Longer Leases Required
In the 1990s, when the tenancy laws were reviewed, there was no desire to allow tenants to enter into longer term leases - that is for more than twelve months. As a result, tenancies in this country tend to be relatively short. This means that long term tenants face the risk of having to move more frequently and have uncertainty over the term of their tenancy. The time has come to allow tenants to enter into longer term agreements, as in other countries. Renting in this country was once seen as a purely interim measure, between leaving home and buying a house. This is changing quickly, with people renting for much longer periods and many will spend their entire lives doing this.
We are Looking for Money
General Finance is a non-bank deposit taker licensed by the Reserve Bank. This allows us to raise money from the public. Currently we are looking for funds and are offering attractive rates of 5.50% for two years and 5.75% for three. For amounts greater than $10,000, we are happy to pay interest on a monthly basis, rather than quarterly. Our rates compare most favourably with the banks, who are still only paying interest of between 1.0 and 3.5%. If you require more information, please give us a call and we will send you a rate term sheet and our Product Disclosure Statement. Alternatively these can be viewed online at http://www.general.co.nz/PDS.htm.
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.