Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Welcome to the twentieth fortnightly Cairns Lockie Mortgage Commentary for 2010. 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 (3pm on 4 November 2010) the money markets were at the following levels:

Official cash rate 3.00% (unchanged)
90 day bill rate 3.18 (down from 3.19)
1 year swap rate 3.60 (up from 3.42)
3 year swap rate 4.30 (up from 3.98)
10 year bond rate 5.32 (up from 5.05)
Kiwi dollar 0.7840 (up from 0.7516)

The Government Guarantee on Deposit Taking Institutions

On October 12, the deposit guarantee scheme, which was implemented at the height of the global financial crisis in 2008, officially ended. A few financial institutions did have the option to enter the guarantee for a further year, but a large number including the banks decided not to. This is positive as it is showing that our financial system is returning to normality. There are of course fewer finance companies now, but is fair to say that those that have survived must have being doing something correct and should emerge stronger. On top of this, to further protect the investing public a number of new regulations have been introduced to protect investors in the non-bank deposit sector including building societies, credit unions and finance companies. Our concern is that ten years ago we certainly did not have enough regulation in this sector but the regulators may have over reacted. The last thing we want for both the investment and borrowing public is the non-bank deposit sector to be killed off. Most of these smaller institutions are New Zealand owned and if these all go, we will be more dependent on the foreign owned banks than ever.

Gift Duty to End

The Government is going to abolish gift duty effective 1 October 2011. This law has been on the statutes for 152 years. Most people come across gift duty when they are transferring their residential dwelling to a trust. Under this scheme the house is sold to the trust at market price with a loan back to the settlors which is progressively forgiven at a rate of $27,000 per year (or $54,000 for a couple). This is not to be confused with death duties, which were nil rated back in 1992. The reason for the gift duty change is to cut compliance costs. For the Government this tax brings in $2.2 million a year but imposes a $70 million a year compliance cost to the taxpayers. This includes the cost of individuals having to go to their accountants or lawyers each year to fill out a filling certificate, which often costs $300-500 each time. This is a radical change but a positive one to reduce compliance costs.

Some Positive News for House Prices

Many commentators have been saying that the residential market is quiet. One of the major influences of our market is the rate of immigration into this country. If immigration picks up and we have more people coming to the country (than leaving), the housing market tends to become more active and prices firm. The converse also works. According to Statistics NZ, adjusted net permanent and long term migration (which takes in the effect both inward and outward migration) was 1,100 for September. This was well up on 900 which included both July and August. This is positive for the housing market although we expect it to remain subdued for the rest of the year.

Short Term Finance

Just a reminder - we do have short term or bridging finance available. It is for people looking for mortgage finance for the shorter term - often from 6 to18 months. On the other side our finance company is taking deposits. Our prime rate for investors is 9.25% for 3 years with an option of the interest being paid either quarterly or monthly. We are one of the few finance companies to offer this monthly option. As many people are now paying their bills on a monthly cycle then this is attractive way to receive your interest. A copy of our prospectus can be obtained from our office or our website at www.general.co.nz.

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