Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2007 / 3 16 March 2007

Welcome to the third 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 March 2007) the money markets were at the following levels:

Official cash rate 7.50% (up from 7.25%) 90 day bill rate 7.89 (up from 7.82) 1 year swap rate 7.97 (up from 7.94) 3 year swap rate 7.69 (up from 7.59) 10 year bond rate 5.84 (down from 5.92) Kiwi dollar 0.6926 (down from 0.6940)

Official Cash rate (OCR)

As predicted, the Governor of the Reserve Bank has increased the OCR from 7.25% to 7.50% due to the continuing strength of the economy and the housing market. The productive sector will be hit again with higher interest and exchange rates. Homeowners merely go along the yield curve and look for cheaper fixed rates. It just seems ridiculous that we choke-off growth in the export sector due to the continued non-productive expansion of the Government sector in Wellington. Higher mortgage rates are a major impediment to first time house buyers entering the market which we should be encouraging.

Housing Consents - Steady

Building consents for new residential dwellings for the past 12 months have remained steady. For the 12 months to January 2007, 1,880 consents were issued, compared with 1,900 for the same period the previous year. What is interesting with these figures is that building consents were down from 1,244 to 1,106 in the main centres (Auckland, Waikato, Wellington and Canterbury). It is the regional areas, particularly Otago, Nelson, West Coast, Manawatu and Wanganui, which have seen the largest increase in building consents up 78% from 180 to 321. Going forward, real estate commentators expect the current number of consents to slow.

Our Deposit Rates Have Increased Our subsidiary company, General Finance Limited, is looking for deposits. It offers a range of terms to investors, ranging from 6 months to 5 years. Our headline rate is for 2 years at 9.85%. We use your funds to provide short term bridging types of loans. All loans are secured by way of first or second mortgage over residential real estate. We welcome your enquiries.

Government Proposed Shared Equity Scheme

The Government is currently proposing, in the more expensive parts of the country, that a shared mortgage equity scheme will be developed. The Government will put up to 30% of the capital into the property and the homeowner will borrow the remaining 70%. When the property is ultimately sold, the proceeds will be split in the same proportion as the capital input. The Government will receive the 30% it has put in and the homeowner will receive 70% of the capital gain less any outstanding mortgage. Will it work? We think not and believe it will fuel further price increases. We believe with the 30% kicker from the Government, prospective homeowners will be able to bid for more expensive homes and force further price increases. It is likely to be discriminatory, apply to certain regions, certain income groups and it may incorporate some form of politically correct agenda. Another scheme that was implemented across the Tasman five years ago, the $14,000 first home buyers grant, merely helped to push up prices further in an already inflated market.

Our current mortgage interest rates are as follows:

Variable rate 9.45%

No Financials Home Loan 10.05

Jumbo Loan 9.45

One-year fixed rate 9.08 Two-year fixed rate 8.70 Three-year fixed rate 8.65 Five-year fixed rate 8.35

Line of credit facility 9.55

Regards William Cairns James Lockie

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