Issue 2011 / 13   29 July 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 (9 am on 29 July 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.87 (up from 2.66)
1 year swap rate    3.35 (up from 2.97)
3 year swap rate    4.10 (up from 3.84)
10 year bond rate   5.02 (down from 4.98)
Kiwi dollar         0.8711 (up from 0.8425) 

Assisting the Next Generation with Home Ownership
In the last two newsletters we have been discussing how to assist first home buyers into their homes. It is easier for those in a relationship to purchase a house if they have two incomes.  It is also cheaper for a couple to live together, rather than two single people living in different dwellings. Two (or more) single people can form a property partnership and purchase a property together. This has the advantage of accessing more than one income for servicing.  We urge the various partners to discuss exactly what their objectives are, and for instance how one partner is to be bought out etc. One downside of these arrangements is that each partner is liable for the other partner’s mortgage payments and rates, should one partner default. For some single people, this is a solution, but we suggest that legal advice be taken so each partner is aware of their rights and obligations. 

Problems with Vendor Finance
In recessionary times there is an increase in property sales involving vendor finance. These loans often take the form of 5 - 20% of the property value and are used to assist the sale of the property. This type of finance is more common overseas but not here and lenders do not like it.  There are several reasons for this. Lenders expect borrowers to contribute a certain deposit - if borrowing 80% you cannot expect the vendor to supply the other 20%. Vendor finance is often for short terms of 6 - 24 months and the question is: how will this be repaid?  Relying on inflating property prices is not realistic. This type of finance is often used when property may be inflated in price, or in a unique or unusual location. Houses in good locations, in all our major cities and provincial towns, are currently selling quite quickly without the assistance of vendor finance.  

Role of a Corporate Trustee
A corporate trustee is a company that acts as a trustee for your trust. They come in two forms: a major corporate trustee such as Guardian Trust or a private company whose sole purpose is to act as a trustee. If you have a family trust, should you have individual trustees or a corporate trustee? Straight forward family trusts generally have individuals but more complex trusts may use a corporate trustee. Your solicitor or accountant will be able to advise you and it will depend upon the trust’s particular circumstances.  

Powers of Attorney
If you are buying or selling a property and you (or your partner) are likely to be away, there is no reason to hold up settlement. An attorney is useful here to act on your behalf. You can appoint an attorney to handle all your business affairs or just to handle one particular transaction. Anyone of sound mind, over the age of eighteen, can be appointed as your attorney.  We suggest you use someone who understands your affairs. Often this is your accountant or lawyer. To appoint a power of attorney is a straight forward exercise and your solicitor can quickly draw up the necessary documents.

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.