Cairns Lockie Mortgage Commentary
Issue 2004/6 16 April 2004
Welcome to the sixth Cairns Lockie Mortgage Commentary for 2004. This is a fortnightly electronic newsletter, which aims
to keep you informed on developments at Cairns Lockie, Mortgage Bankers and the mortgage market in general. Previous
issues of this commentary can be found on our website http://www.emortgage.co.nz/newsletters.htm
The Money Market
This morning (9am on 16 April 2004) the money markets were at the following levels:
Official cash rate 5.25% (unchanged)
90 day bill rate 5.56 (up from 5.53)
1 year swap rate 5.78 (up from 5.63)
3 year swap rate 6.15 (up from 5.88)
10 year bond rate 6.09 (up from 5.74)
Kiwi dollar 0.6355 (down from 0.6695)
Rental Properties in Australia are Very Taxing
On July 1 this year a new property tax is coming into force in NSW Australia - an exit stamp duty impost of 2.25%. It
will apply to those who sell second homes or investment properties at a price 15% or more above their purchase cost.
This is on top of the stamp duty paid on purchase and the capital gains tax on sale. For example, if you purchase a
rental property for $600,000, get 5% capital growth each year and sell it for $800,000 in 6 years time: stamp duty on
the way in is $22,000 and on the way out is $18,000. Capital gains tax accessed on the remaining $160,000 (when adjusted
for stamp duty) is $39,000. So the investor is paying $79,000 in tax on their $200,000 gain. This excludes other
transactional costs such as legal, bank and estate agents fees. It is much more profitable purchasing residential
investment properties here in NZ and we can understand why Australians are looking at our market favourably.
Island for Sale
New Zealand is surrounded by islands. There are an increasing number of people wanting to purchase coastal properties
with good sea views. One way to acquire a complete sea view is to purchase your own island. They do occasionally come up
for sale. Recently a 35h2 island located in the Marlborough Sounds was sold by its elderly sole owner (who had resided
there since the late 1950's). The island was snapped up quickly for between $2.0 - 3.0 million.
Self-Employed and Wanting to Invest in Property?
One of our areas of speciality has been helping self employed people to purchase residential properties, baches and
rental properties. We know of several instances where banks are happy to lend to the employees of a small business but
not to its owner. Reasons given include the lack of current financial information, as businesses prepare their accounts
annually, whereas wage earners may receive an income statement either weekly or fortnightly. Often businesses show low
levels of profitability as the owner may be ploughing their profits back into the business. It is estimated that there
is around 200,000 small businesses operating in this country so it is an important business sector. If you are
self-employed or have clients who are, we understand their position and can assist.
Second Mortgages Are Useful
There is the suggestion that in our easy credit giving environment there is little need for second mortgages. We are
finding that the opposite is true and that there is a steady demand. Second mortgages are being used for a number of
one-off purposes such as, additional working capital to establish or grow a small business, home renovations or
improvements or more commonly for short term bridging. If you are looking for some short term additional accommodation
then a second mortgage may be the way to go.
Our current mortgage interest rates are as follows
Variable rate 7.15%
No Financials Home Loan 8.15
Jumbo Loan 7.15
Quick Start Home Loan 6.55
One-year fixed rate 6.86
Two-year fixed rate 7.17
Three-year fixed rate 7.29
Five-year fixed rate 7.41
Line of credit facility 7.25