Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2005/5 8 April 2005

Welcome to the fifth Cairns Lockie Mortgage Commentary for 2005. 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 (8am on 8 April 2005) the money markets were at the following levels: Official cash rate 6.75% 90 day bill rate 7.05 (same as 7.05%) 1 year swap rate 7.10 (down from 7.12%) 3 year swap rate 6.94 (down from 7.02%) 10 year bond rate 6.08 (down from 6.23%) Kiwi dollar 0.7132 (down from 0.7286)

Our current mortgage interest rates are as follows Variable rate 8.65% No Financials Home Loan 9.25 Jumbo Loan 8.65 Quick Start Home Loan 7.40 One-year fixed rate 7.83 Two-year fixed rate 7.79 Three-year fixed rate 7.99 Five-year fixed rate 7.99 Line of credit facility 8.75

Good news for Auckland and Wellington

In a recent Mercer Survey of the quality of life in cities around the world for 2005, Auckland ranked eighth equal with Sydney, Copenhagen and Bern. Wellington ranked fourteenth equal with Melbourne. The survey of 215 cities ranked them according to thirty-nine criteria including such things as personal safety, social, economic and environmental factors. Geneva and Zurich were the top two while Baghdad in Iraq ranked lowest. The cities which received the highest ratings were in politically stable countries with growing economies and all had good international relations records. It is pleasing to see the only two New Zealand cities in the survey both ranked in the top fifteen.

Comparison of rental yields

Investors are noticing that, over the past few years, house prices have been going up faster than rentals. According to Bank of New Zealand chief economist Tony Alexander, between the beginning of 2001 and the end of 2004, rents around the country rose 8.9% but the average house price rose 56% over the same period. As a result, rental yields have been decreasing. A rental yield is determined by the value of the property divided by the gross annual rental and expressed as a percentage. According to figures supplied by property management company Crockers, the median selling price of a property in Auckland was $350,000 at 31 December 2004 and the median rental was $368 per week, or $19,136 per year. This means a yield of 5.47%. In other parts of the country, such as some provincial towns, it is possible to achieve higher yields. The interesting question is, how does this compare with Australian cities. For example, the median house price in Brisbane is $336,000. A median rental of $249 per week, or $12,948 per year, this means a yield of 3.85%. Similarly, in Sydney the median selling price is $513,600 with a weekly rental of $271, or $14,092 per year, producing a gross yield of 2.74%. This is well below the 4.5% you can receive on most call deposit accounts being offered in Australia. As one can see, cashflow wise, it pays you to own rental properties here rather than across the Tasman. The position in Australia is even worse than a yield comparison suggests because you have to pay capital gains tax when you sell and you have to pay stamp duty. This may well explain the increasing number of Australians looking for rental properties in this country.

Non Financials mortgages and investment properties

For last couple of years we have been writing a number of loans where borrowers who are self-employed can self-certify their income. This has certainly made it easier for one group, the self-employed who have always found it harder to borrow than, say, those employed and subject to the PAYE regime. We can advance up to 80% of the purchase price or the valuation on these mortgages. One aspect of this type of lending that is overlooked is that it can apply to rental properties as well as owner-occupied homes. If you are self-employed but have difficulty in confirming your income through formal financial statements and want to start or continue to purchase rental properties, we can probably help you. We're happy to discuss your proposals.

Second mortgage finance available

As outlined in our previous newsletter, General Finance Limited is taking deposits. Our headline rate is 10% for 2 years with interest paid quarterly and this can be compounded as well. On the other side, we are lending funds, particularly for smaller second mortgages. These can be ideal if you are doing up a property with the intention of selling it and you do not quite have enough funds available, or you have decided to spend a bit more than you originally intended. We are happy to advance these funds for any period ranging from a few days up to 12 months.

Regards William Cairns James Lockie Cairns Lockie Limited 321 Great South Road, Greenlane, Auckland PO Box 74-212, Market Road, Auckland Telephone (09) 526 2000 Facsimile (09) 579 7795

Website http://www.emortgage.co.nz

The interest rates quoted are subject to change and are not necessarily the finance rate for the purposes of the Credit Contracts Act 1981. Cairns Lockie Limited is not a Registered Bank.

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