Cairns Lockie Mortgage Commentary 25.05.07

Cairns Lockie Mortgage Commentary

Issue 2007 / 8 25 May 2007

Welcome to the eighth 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 25 May 2007) the money markets were at the following levels:

Official cash rate 7.75% (unchanged) 90 day bill rate 8.11 (up from 8.08) 1 year swap rate 8.22 (up from 8.18) 3 year swap rate 7.97 (up from 7.86) 10 year bond rate 6.32 (up from 6.10) Kiwi dollar 0.7280 (down from 0.7346)

Home Affordability

Home Affordability is becoming a real problem in New Zealand. We recently had a family approach us for a 95% mortgage to purchase a home in Auckland. One partner was earning $90,000 per year - a good income by this country's standards. The other partner was at home looking after two children under three. The interest payments on a mortgage of $425,000, at a fixed rate of 9.0%, were $38,250. The borrower's annual tax payments were $26,370 and the family was unable to get Working for Families as they were earning too much. After taking their mortgage interest payments and tax they would have been left with $25,380 to pay for their rates, insurance, electricity, car running, doctor, food and clothing. This could not be done and they were unable to obtain a home loan. What is serious with this situation is that their biggest two costs were interest and tax charges. This is not right. Our tax system and interest rates are preventing a large number of working and middle income New Zealanders from acquiring the Kiwi dream - their own home.

House Prices in Auckland

House prices continue to increase despite recent mortgage rate rises and the Government trying to talk the market down. The Auckland region has the highest median house prices in the country at $452,000 in April, up from $434,000 in March and well up from $387,050 the previous year. Within Auckland there are variations in house prices. The North Shore has the highest median price at $540,000 up from $520,000 in March, and considerably higher than April last year ($455,000). Auckland City (including a large number of inner city apartments) now has a median price of $510,000, up from $507,500 in March, and up from $430,000 the year previously. In Manakau the median sales price reached $425,000 up from $415,000 in March and up from $365,000 in April 2006. According to agents spoken with, this trend is expected to continue for May. Source: Real Estate Institute of NZ.

Finance Company Rankings

On Wednesday 11 May 2007, the National Business Review published its NBR Banking and Finance Scorecard. This ranked financial institutions on a number of criteria. Our subsidiary General Finance Limited ranked 75 out of 86 on Total Assets, against the likes of Westpac, BNZ and UDC. As our investors know, we are a boutique finance company lending in the residential housing sector. General Finance's other rankings were: number 1 in Return on Assets; number 11 in Return on Net Worth; and number 10 in Gearing . We are proud of these rankings. Our investors can take comfort that the company is tightly managed, lending in a clearly defined safe sector and as the gearing ratio shows, we are well capitalised.

How we Assist our Mortgage Brokers to Assist Our Borrowers

There has been recent press comment about the trading banks reducing mortgage brokers' commission. As a non-bank lender we recognize how valuable the broking network is both to us, and the borrowing public. We offer a variety of ways to assist our mortgage brokers: " We are consistent with our commission payments. They have been the same since we started. " We do not claw back any commission. We consider that when a broker puts a loan submission to us and it settles, the broker has done their job and they are entitled to their commission payment. " We have the largest product range of any lender in the country. This means if a broker uses us and the loan is bankable we can do it. It saves the broker a lot of time in shopping around, and means that the most suitable option is available to the borrower. " Finally we have an experienced staff, with many years in the industry. This assists in us understanding the borrowers' requirements and in providing the most appropriate product for their needs.

Our current mortgage interest rates are as follows:

Variable rate 9.70%

No Financials Home Loan 10.30

Jumbo Loan 9.70

One-year fixed rate 9.26 Two-year fixed rate 8.94 Three-year fixed rate 8.95 Five-year fixed rate 8.84

Line of credit facility 9.80

Regards William Cairns James Lockie

ENDS

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