Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2009 / 5 9 April 2009

Welcome to the fifth fortnightly Cairns Lockie Mortgage Commentary for 2009. 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 morning (8 am on 9 April 2009) the money markets were at the following levels:

Official cash rate 3.00% (unchanged)
90 day bill rate 3.24 (down from 3.44)
1 year swap rate 3.23 (down from 3.30)
3 year swap rate 4.48 (up from 4.35)
10 year bond rate 5.30 (up from 5.15)
Kiwi dollar 0.5788 (up from 0.5705)

Lending Criteria is Now Too Conservative

Those who are borrowing for residential purposes will have noticed that all lenders have tightened up on their criteria considerably compared with two or three years ago. The general rule now is that a prime rate lender will advance up to 80% of the value of an owner occupied property and 70% on rental properties. We believe that limiting 80% to owner occupied residential homes is a little tough and more reasonable level would be 90%. This higher level would certainly allow more first time home owners (who also have the requisite incomes) to enter the market. It would allow more properties to be sold, which would create more work for those in the real estate related occupations such as a variety of trades people, DIY stores and home renovation companies. Houses have dropped in value by around 10% over the past 12-24 months, so at the 90% level, in this new environment, there is still a margin for safety.

Auckland Property Market Better in March

During March the Auckland residential property reached a 20 month high in sales volumes, according to locally based real estate agents Barfoot and Thompson. They sold 924 homes in Auckland during March 2009, compared with 632 in March 2008. This does not necessarily mean the bottom has been reached but certainly lower mortgage rates are assisting with affordability. Landlords are starting to re enter the market, particularly when a positive return is now possible on many more properties than say a year ago. Certainly driving around Auckland one sees many more signs outside properties with sold stickers attached.

Our Market is Different to the USA

Anyone watching the international news will be aware that the United States property market is facing a steady decline in values, with falling turnover and an increasing number of foreclosures. While our market is very much in a negative phase, it is quite different to the US market. We did not have the considerable sub prime market where those with quite poor credit histories could quite easily obtain 100% funding on their properties. Our sub prime market did exist, but it was small by comparisons. Our interest rates over the past three years were high, by world standards, whereas the US market during this period had much lower interest rates, with many low honeymoon style rates being offered as well. These lower rates allowed many more people to qualify for loans who would not have in this country. We do not have an over supply of houses as they do in the US - this is a major factor in driving property prices lower there. Mortgage rates in the US have been relatively low for a quite a while – whereas ours have not, and so our recent substantial falls are having a major positive impact on housing affordability. In many ways we are better placed in this country.

Accidental Landlords

A term that is starting to appear in the press is “accidental landlord”. This is someone who becomes a landlord and lets out their property without the original intention of doing so. This often happens if someone is moving towns or going overseas and they are unable to sell their home and are then forced to let it out. As many who find themselves in this situation may not know much about the "ins and outs" of letting a property we advise them to seek professional advice sooner than later. A respectable property manager should be consulted as it is often difficult to manage a property by remote control if you are in a different location. Accounting advice should also be sought to determine what items are tax deductable, as rental income is accessible for tax. Contact should be maintained with your real estate agent as they can advise when the market is improving so you are then able to reactivate your sales process. Being a landlord should not be an onerous task but you must have the right managerial systems in place.

Mortgage Interest Rates

For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the Cairns Lockie Limited Loan Administration Department (below).

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