Cairns Lockie Mortgage Commentary 21 Nov 2008

Cairns Lockie Mortgage Commentary

Issue 2008 / 21 21 November 2008

Welcome to the twenty-first fortnightly Cairns Lockie Mortgage Commentary for 2008. We aim to keep you informed on developments at Cairns Lockie, Home Loans 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 evening (5 pm on 20 November 2008) the money markets were at the following levels:

Official cash rate 6.50% (unchanged)
90 day bill rate 5.80 (down from 6.65)
1 year swap rate 5.28 (down from 6.00)
3 year swap rate 5.56 (down from 6.20)
10 year bond rate 5.60 (up from 6.01)
Kiwi dollar 0.5411 (down from 0.5920)

Interest Rates Again

Our Reserve Bank next reviews the Official Cash Rate, on 4 December. The market expects it to drop by at least 50 basis points but, given the higher than expected drop in Australia two weeks ago and the large drop of 1.5% in the UK recently, our Governor may well drop our rate by 1.0%. Dropping cash rates has been used as a major tool internationally to try and restore market confidence. The cash rate in the USA is at 1.0% - the same level as in the Depression of the 1930's. The UK's cash rate at 3.5% is the lowest it has been for 54 years. The Governor of the Reserve Bank in Australia is expecting to cut rates again at their next review. These are bold but positive moves - borrowing costs are a large component of most household budgets, as well as for businesses, and any lowering of these is welcome. It will be interesting to hear our Governor’s comments on our economy when he gives his views next on 4 December.

Rental Growth in Sydney

Residential rents are continuing to grow in Sydney, as the market remains tight and housing affordability continues to be poor. The latest Housing NSW data shows rents in New South Wales jumping by 10.3% in the September quarter compared with a year ago. The median rent in NSW is now $320 a week - a 3.2% rise over the three months ending September. The suburb of Botany Bay saw the biggest jump of 35.4% in median rent (to $325 per week) for one-bedroom units over this period. Over the past 12 months, the suburb had 42.9% rental growth. While housing prices have fallen in recent months, they remain well up on levels of three or five years ago. In NSW, the modest drop in housing prices, combined with soaring rents, lower interest rates and rising population, is leading to a stronger demand for property.

We Have Funds to Lend

Our finance company, General Finance Limited has funds to lend. We are particularly interested in bridging or short term advances. Our maximum loan size is around $300,000 and we can advance up to 70% of the property’s value. Preference is given to first mortgages but we will consider sound second mortgages. All lending is secured over residential properties. For further information please do not hesitate to contact one of our lenders.

Election and the Housing Market

As a result of the new National (and coalition) government, there will likely be some positive changes within the general housing market. Two important factors that will occur are that housing will become more affordable due to a mixture of lower mortgage rates and further tax cuts. This will benefit existing homeowners and those expecting to enter into the housing market. Other important changes likely are streamlining of the Resource Management and Building Acts, which should speed up processing times and reduce compliance costs. The new Government is talking about giving some relief to those who have problems with leaky homes but no details have been released yet. We believe that if the Government will allow state housing tenants to buy their existing homes, this will allow some of these people to become home owners and release funds to build more properties.

Our current mortgage interest rates are as follows:

Variable rate 9.50%

Six-month fixed rate 8.60
One-year fixed rate 8.30
Two-year fixed rate 8.30
Three-year fixed rate 8.45
Four-year fixed rate 8.60
Five-year fixed rate 8.70

Line of credit facility 9.55

ENDS

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