Cairns Lockie Mortgage Commentary 16 Feb

Cairns Lockie Mortgage Commentary

Issue 2007 / 1 16 February 2007

Welcome to the first fortnightly Cairns Lockie Mortgage Commentary for 2007. We aim 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 16 February 2007) the money markets were at the
following levels:

Official cash rate 7.25% (unchanged)
90 day bill rate 7.75 (up from 7.65)
1 year swap rate 7.93 (up from 7.74)
3 year swap rate 7.59 (up from 7.36)
10 year bond rate 5.92 (up from 5.78)
Kiwi dollar 0.6940 (up from 0.6934)

Strong Property Market Continues

Over the past three months the residential property market has been strong - it is experiencing a tail wind. Most property commentators were not expecting this. There are a number of causes. Our population is continuing to grow, both naturally and through immigration. There is a real shortage of residential rental property, particularly in Wellington, which is causing rentals to rise and driving more investors into this sector. Unemployment remains low, allowing more people to purchase property. Inflation is reasonably high at around 3.0%, encouraging investment in this sector. People are saying it is better to buy now, and stimulating demand, rather than waiting a year when house prices will probably be more expensive.

Mortgage Levy Nonsense

Recently, Dr Cullan, the Finance Minister, proposed a mortgage levy, suggesting that if the Official Cash Rate (OCR) was put up, those on fixed rate mortgages, would be taxed at the same percentage as the OCR increase. If the Official Cash Rate went up by 1% over the course of a year, and a borrower had a loan of $300,000 on a fixed rate mortgage, they would pay a levy of $3,000 (1% on $300,000). This idea is totally impractical. Imagine someone who is using their own home as security to borrow funds to purchase a business which will pay tax and employ people - they will have to pay the levy. Imaging levying a family with young children, already struggling with a large mortgage. On the other side of the coin, if the Reserve Bank wanted to stimulate economic activity, and drop interest rates, would a negative levy apply, with subsidy payments to fixed rate borrowers? Presumably a negative levy would be funded by the tax payer. This is clear example of the government trying to "make policy on the hoof" with little thought of the severe ramifications of such a levy on homeowners.

Who is Currently Borrowing?

Recently a misinformed article appeared in one of the daily papers saying that around 70% of all current residential borrowing was to the baby boomer generation buying rental properties. This is plainly untrue. Most of those who are borrowing are doing so to purchase their own home. In fact, two out of three dwellings are owner occupied. More borrowers are using their own home as security for business purposes: funding the purchase of a business or for growing that entity or replacing more expensive debt with the cheapest form of funding, a loan over their home. Other home loan borrowing being done is to purchase baches or for larger consumer items, such as cars and boats.

Bridging Finance Available

One area of financing that we are developing is bridging finance. This is short term finance for periods from a few days to a year, to assist a purchaser to buy a property now, without yet having sold their existing home. In many cases,r when you are changing houses it is hard to match selling your existing property and immediately finding something you like. Often you find a suitable property before you have sold. The solution is short term bridging finance. What's more, we are happy to capitalise the interest and costs during the bridging period. We welcome your enquires.

Our current mortgage interest rates are as follows:

Variable rate 9.20%

No Financials Home Loan 9.80

Jumbo Loan 9.20

One-year fixed rate 8.98
Two-year fixed rate 8.60
Three-year fixed rate 8.58
Five-year fixed rate 8.26

Line of credit facility 9.30

Regards
William Cairns
James Lockie

ENDS

http://www.emortgage.co.nz

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