Issue 2011 / 1   11 February 2011

Welcome to the first fortnightly General Finance Mortgage Commentary for 2011.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general.  Previous issues of this commentary can be found on our website http://www.general.co.nz/newsletters.htm

The Money Market
This morning (9am on 11 February 2011) the money markets were at the following levels:
Official cash rate    3.00% (unchanged)
90 day bill rate       3.22 (up from 3.18)
1 year swap rate    3.41 (down from 3.42)
3 year swap rate    4.16 (down from 4.22)
10 year bond rate   5.49 (down from 5.74)
Kiwi dollar         0.7712 (up from 0.7502) 

Auckland Rental Increases
Currently Auckland is experiencing a shortage of rental accommodation and as a result rentals are going up.  Finance companies were an important source of funds to developers building residential dwellings, including rental properties.  With the demise of the finance company sector accompanied by the Government’s heavy handed regulatory measures we seeing a decline in the number of providers of construction finance.  Government finances are also constrained and so the state is unable to build more state houses to help alleviate the shortage. There are New Zealanders returning from overseas who own their properties and when this occurs there is one less dwelling available for the rental market. We believe this situation will continue to worsen.   

Lowering our OCR
In the middle of last year the Reserve Bank increased the Official Cash Rate (OCR) on two occasions from 2.5% to 3.0% . The immediate effect was to increase mortgage rates by around half a percent. The reasons given, which have since turned out to be incorrect, were that the economy was improving and we were coming out of the recession. As anybody in business knows this was nonsense. Business conditions were tight all of last year and remain so currently. Finally the finance minister admitted last week that we maybe entering a double dip recession. We believe we have and so the Government must start implementing policies to reflect this.  As we still have some of the highest interest rates in the western world it could start by dropping the OCR back by half a percent to 2.5%, as it was raised prematurely. This would immediately give those with mortgages some relief. It may slow landlords increasing their rentals to cover such things as increasing costs for insurance, mortgages and rates. This will benefit those who are renting.  

Mortgage Rates for 2011
A question we are often asked is what is likely to happen to mortgage rates this year. Most economists were predicting if there was going to be any increase in rates, it would occur during the second half of the year. As we appear to be in a double dip recession, together with a general election in November, we believe there may not be any increases this year. The market seems to be coming to this conclusion as well, as more and more borrowers are opting to float their mortgages rather than fixing them. The key to any rises in the OCR and hence rising mortgage rates is an improvement in our economic environment and falling unemployment.  This, in our opinion, this is unlikely to occur in 2011. 

We have Finance Company Money to Lend
We currently have short term or bridging funding available through our finance company. This type of finance is becoming increasingly harder to find with fewer finance companies in the market place.  The terms for bridging finance range from a few weeks to up to two years. Its main purpose is to enable the borrower to buy time to sort out their financial affairs - for example to complete the buying or selling of a property or a business to enable refinancing to a prime rate borrower.  We are happy to talk through proposals with you. 

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 General Finance Limited Loan Administration Department.

As everyone's personal circumstances are different and the tax treatment of their affairs is always determined by their own circumstances, you should not act on any comments made in our Commentary without obtaining your own independent professional advice.

General Finance Limited is a Registered Financial Services Provider, with registration number  FSP8882.