Cairns Lockie Mortgage Commentary 24 Oct 2008

Cairns Lockie Mortgage Commentary

Issue 2008 / 19 24 October 2008

Welcome to the nineteenth fortnightly Cairns Lockie Mortgage Commentary for 2008. We aim to keep you informed on developments at Cairns Lockie, Home Loans 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 (8 am on 19 October 2008) the money markets were at the following levels:

Official cash rate 6.50% (down from 7.50%)
90 day bill rate 7.11 (down from 7.63)
1 year swap rate 6.31 (down from 6.64)
3 year swap rate 6.36 (down from 6.55)
10 year bond rate 5.92 (up from 5.70)
Kiwi dollar 0.5892 (down from 0.6028)

The Reserve Bank has Moved

In our previous newsletter, a fortnight ago, we suggested that the Reserve Bank should immediately cut the Official Cash Rate (OCR) by 1.0% from 7.5% to 6.5%. They did this yesterday. This is a positive move for the economy. The Governor did mention that he was concerned about our inflation rate which is hovering around 5%. We are not the only economy that is experiencing an increase in inflation. Australia has a similar rate of inflation to us at 4.5% and an OCR of 6.0%. The USA has a low OCR of 1.5% yet its inflation rate is over 5%. The UK has an OCR of 4.5% yet an annual inflation rate of 4.7%. Due to the state of the world economies, individuals are unlikely to go out and increase their expenditure on such things as consumer items and investment properties due to falling interest rates. One advantage that New Zealand does have, is that we do have considerable scope to cut our rates further. This will lead to lower mortgage rates in the medium term, which will give those Kiwis with mortgages considerably more money in their pockets than the recent tax cuts.

Home Affordability is Improving

Over the past six months house prices have certainly stabilised and in a number of cases purchases for 10-15% discounts have been possible. At the same time mortgage rates have begun their decline with the prospect of further cuts to come. Rents appear to be stable at their current levels. As a result of the above, the affordability of buying and owning a house is improving. For example, if you purchased a $350,000 house with a $300,000 mortgage for 25 years at a rate of 10.0% a year ago your yearly payments would have been $32,713. A drop to 9.0% means your annual payments decrease to $30,211, a drop to 8% is $27,785 and a rate of 7%, that may be available next year, will drop your payments further to $25,444. This is particularly important to first home buyers, as each one percent drop in rates means considerably more of them can enter the market. Provided unemployment does not increase too much, lower mortgage rates will assist in reviving the local housing market, on which so many companies and individual rely for their incomes.

Auckland City Council Valuations

This week the Auckland City Council released their three yearly council valuations. They cover all forms of property within the Auckland City area. Written confirmation is currently being sent out to property owners. The new valuations can now be accessed from the council’s website at www.aucklandcity.govt.nz. Rates are determined from these valuations. For example if the average increase in the values was 30% across Auckland, and your property went up only 20%, your rates will be lower. Obviously the converse is also true. If you want to object to your new valuation you have until 1 December 2008 to do so.

Guaranteeing Finance Company Deposits

Two weekends ago, the Government announced a deposit guarantee scheme effective from 12 October 2008 for two years that will cover qualifying banks, building societies, credit unions and finance companies. To qualify the deposit taking institution must be fully compliant with its trust deed. This will exclude those institutions in receivership and probably those with moratoriums in progress. Full details of the scheme have yet to be released. General Finance Limited is a retail deposit taker. It has applied to be registered under the scheme. We believe that we meet the criteria and we are awaiting confirmation from Treasury in Wellington. We will keep you informed with our progress. We view this as a positive move, as it will shore up much needed liquidity and confidence within the finance company sector.

Our current mortgage interest rates are as follows:

Variable rate 10.15%

Lo Doc Home Loan 11.05

Line of credit facility 10.25

Regards
William Cairns
James Lockie

ENDS

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