Cairns Lockie Mortgage Commentary 27 April 2007

Cairns Lockie Mortgage Commentary

Issue 2007 / 6 27 April 2007

Welcome to the sixth 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 27 April 2007) the money markets were at the following levels:

Official cash rate 7.75% (up from 7.50%) 90 day bill rate 8.08 (up from 7.91) 1 year swap rate 8.19 (up from 8.05) 3 year swap rate 7.95 (up from 7.85) 10 year bond rate 6.12 (up from 5.97) Kiwi dollar 0.7392 (up from 0.7296)

Another Rate Rise

Yesterday the Governor of the Reserve Bank increased again the official cash rate (OCR) from 7.50% to 7.75%. The main reasons cited were inflationary pressure in the housing market, strong domestic demand and a continued increase in Government spending. New Zealand continues to have the second highest interest rates in the western world after Iceland. The dollar remained stable at around US$0.745 yesterday but the latest increase had been widely anticipated and we have seen our currency appreciating against all other currencies for the past month. Our high interest rates are making it very difficult for first time home buyers and the higher exchange rate is severely impacting on the exporting sector. For example Fisher and Paykel, a major employer in the Auckland region, announced this week, that it was closing part of its manufacturing operation and relocating to Thailand, with the loss of 350 New Zealand jobs.

Not a Property Mad Nation

We are constantly being told that we are a property mad nation and all we want to do is to purchase our own home. In fact this is incorrect - our home ownership rate peaked at 73.8% in 1991 and has since fallen to 65.0%. It is expected to drop further, to 61.8%, by 2016. In the Auckland area it is expected to drop to 58.3%. We were once in the top three property-owning countries in the World. We are now around tenth. The decline in home ownership that we are seeing is unique amongst the developing countries. We need to recognise that home ownership is in fact falling and we should be starting to implement strategies to encourage home ownership and to enable more Kiwis to realise this dream.

Poor Management of State Houses

It was reported in the Dominion last week that state house rent arrears have increased by 40% in the Wellington region. This is in spite of income related rents, where state tenants' rental is now fixed to 25% of their income. The second issue that is causing concern, and is totally unacceptable, is the increasing damage being done to these state owned properties by their occupants. According to Housing NZ, this has increased 8% across the country over the past 12 months. The solution must be stricter management by Housing NZ to manage rent arrears and report all deliberate damage to the police. Every dollar that is not recovered in rental or is used on repairing deliberate damage, is less money that can be spent in the much need areas of education and health.

Splitting Your Mortgage

As a result of the current high mortgage rates, most borrowers are fixing their mortgages. In doing this borrowers are giving up a degree of flexibility - the ability to redraw and repay their mortgage. One solution is to fix 80 to 90% of your mortgage, but keep a portion floating. This allows you to continue using the floating portion like an overdraft facility - you can redraw and repay to meet your own financial requirements. We are happy to discuss with you whether splitting your mortgage is suitable for you.

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 9.23 Two-year fixed rate 8.94 Three-year fixed rate 8.95 Five-year fixed rate 8.84

Line of credit facility 9.55

Regards William Cairns James Lockie

ENDS

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