Cairns Lockie Mortgage Commentary

The Money Market

This evening (7 pm on 18 September 2002) the money markets were at the following levels:

Official cash rate 5.75% (unchanged)
90 day bill rate 5.88 (up from 5.86)
1 year swap rate 5.90 (up from 5.87)
3 year swap rate 6.22 (up from 6.18)
10 year bond rate 6.15 (down from 6.18)
Kiwi dollar 0.4690 (up from 0.4653)

Kiwibank - Already an Under-Performer!

Kiwibank has finally released its result to 30 June, reporting a large loss of $10.2 million for just five months trading. Kiwibank has stated that it has a small mortgage book of $43 million. If their average mortgage size is around $120,000, this is just over 350 mortgages. Considering the bank has around 260 branches, this equates to each branch originating just over one mortgage every five months. We understand that in the same period some bank branches will have originated over 150 mortgages.

Kiwibank's poor performance to date is despite heavily discounted mortgage rates, which are unlikely to last. Tax payers are wearing the loss. It is unlikely that the Government will ever get a return from this institution and it should be closed down with any surplus capital spent on education and health services. We do not need any more financial institutions in our already competitive market place.

Changing of the Reserve Bank Target Ranges

The inflation target for the Reserve Bank has changed from the 0 - 3% range to 1 - 3% range. In the past, that the Governor was criticised for being a little over zealous in meeting his inflation targets i.e. tending towards the 0 figure rather than the higher one. The new targets bring us into line with Australian Reserve Bank. How will this affect the average mortgage borrower? Positively because: · There will be greater stability in mortgage rates, particularly the floating rates. In the past these have borne the brunt of Reserve Bank monetary policy changes. · The Governor will have a little more latitude and will not have to change rates as often as in the past. · Floating rate mortgages will become more important for borrowers. This has occurred in Australia where over 90% of all new mortgages are now written as floating rate mortgages.

Housing Market Update

The housing market continues to remain strong. A total of 8,036 dwellings were sold throughout the country for the month of August. This was 15% higher compared with the same month last year and a huge 47% better than August 2000. Agents are expecting this trend to continue as we enter the spring months, which are traditionally good for housing sales. Median dwelling prices are continuing to edge up. For August 2002 the median price for New Zealand was $185,000. This time last year it was $176,000 and for August 2000 it was $170,000. The two most expensive cities are still Auckland with a median price of $264,000 and then Wellington at $200,000.

Leaky Building Syndrome - Buyer Beware!

This syndrome is occurring in newer properties, less than eight years old and in particular in townhouse and apartment type developments. It is found in all price sectors. A failure in watertightness is causing structural damage. The question for potential home buyers is how can you protect yourself from buying a property that may have this problem. · When you are obtaining a registered valuation ask specifically if your proposed property is affected with this problem. Ensure the response is written into the valuation. · If you are not happy with the response, you can obtain a registered engineer's report or a building inspector's appraisal.

Our current mortgage interest rates are as follows
Variable rate 7.60%
No Financials Home Loan 8.60
Quick Start Home Loan 6.90 (new)
One-year fixed rate 7.21 (new)
Two-year fixed rate 7.47 (new)
Three-year fixed rate 7.64 (new)
Five-year fixed rate 7.76 (new)
Line of credit facility 7.70

Regards William Cairns James Lockie

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