Cairns Lockie Mortgage Commentary 30 March 2007

Cairns Lockie Mortgage Commentary

Issue 2007 / 4 30 March 2007

Welcome to the forth 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 30 March 2007) the money markets were at the following levels:

Official cash rate 7.50% (unchanged)
90 day bill rate 7.92 (up from 7.89)
1 year swap rate 8.04 (up from 7.97)
3 year swap rate 7.81 (up from 7.69)
10 year bond rate 5.92 (up from 5.84)
Kiwi dollar 0.7100 (up from 0.6926)

The Cost of Servicing Your Mortgage

David Chaston's, Interest.co.nz, reported this week that it is now virtually impossible for a single person on the average wage to be able to service a mortgage. The study showed that at the beginning of 2003, it took 43.5% of your take home pay to service the average mortgage. This has since increased to 73.5% and in Auckland the figure is 92.5%.This has serious implications for first home buyers.

We have three suggestions, for the Government, to assist the situation.

" Tax cuts particularly in the $25,000 - $60,000 income range. We have first home buyers saying it just impossible to save for a deposit when your marginal tax rate is 33% or 39%. Borrowers are saying their high level of tax combined with mortgage payments, means there is nothing left. We know of a single lady with a mortgage of $200,000, earning $60,000 a year. Her mortgage payments were $17,000 a year, but her tax bill was $18,000, so she had $25,000 left for rates, insurance, food, clothing, car running and living. Her biggest single expense was, in fact, her tax.

" Lower interest rates. Why are our rates the highest in the world?

" Start selling off some of state houses encouraging many of these tenants to becoming home owners and using the proceeds from the sales to build more.

House Prices Surging in the Capital

Auckland has the most expensive house prices in the country. But over the past 12 months, to 28 February 2007, they have not been appreciating as quickly as some of our other cities. Wellington has seen its average house price go up by $40,800 or 12.8%. Hamilton was second at 12.2%.The national average was 9.3% but Auckland's increase was only 6.9%. The average house price in Wellington is $396,494 with the national figure being $363,017. There is considerable variation within Wellington. The average price in the Western suburbs is around $541,000 and in Upper Hutt it is $316,788.

House Prices and Rents

Over the past five years property prices have doubled but rents have not - in many cases they have only moved 20-25%. A rise or fall in house prices has little effect, particularly in the short and medium term on rental incomes. What drives rental income is purely supply and demand. If we have a surge in say inbound migration, supply tightens and rentals go up. Increasing wealth of a country or lower unemployment has an effect as well, as more people (typically younger) want to leave home and go flatting, further decreasing the available supply. The Government has an influence on how rapidly it builds state houses, thereby increasing the supply. Currently we have a net immigration inflow, unemployment is low, the cost of building new houses is rising, and the supply of accommodation is shrinking. This is good news for landlords and we expect to see rents rising over the next few years.

Non-Conforming Mortgage Lending

Around 15% of the mortgage market is unable to obtain prime rate mortgage finance. The reasons are generally previous financial problems, which have adversely affected their credit ratings. Causes include such things as divorce, a business failure, erratic employment history, redundancy or sickness. Normally they are one-off in nature, and the borrowers want to put their previous credit issues behind them. These mortgages are called non-conforming or sub prime. We are already in this sector but next month we are releasing more mortgage products to assist these people. This furthers our company's objective of having the widest range of mortgage products of any lender.

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 8.80
Three-year fixed rate 8.85
Five-year fixed rate 8.45

Line of credit facility 9.55

Regards
William Cairns
James Lockie

ENDS

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