General Finance Mortgage Commentary 

Issue 2011 / 19   21 October 2011

Welcome to the nineteenth 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. 

The Money Market
This morning (9 am on 21 October 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.73 (down from 2.83)
1 year swap rate    2.93 (up from 2.90)
3 year swap rate    3.44 (up from 3.25)
10 year bond rate   4.68 (up from 4.40)
Kiwi dollar         0.7935 (up from 0.7631) 

More on Kiwsaver
Over the past few weeks we have been discussing KiwiSaver. One of the advantages of the scheme is that you are able to withdraw funds from it to purchase your first home. This is a positive feature, particularly for those in their twenties and thirties, as once they have been in the scheme for a few years, some real savings will have been accumulated. These can be withdrawn to assist with the purchase of a house and they are still young enough to go on and generate some real retirement savings.  If you are purchasing a home with a partner and they are in Kiwisaver as well, this will be an added advantage.

Affordability
One aspect that is important with the current low rate environment (which looks likely to continue for a few more years) is that housing affordability is improving. As mortgage rates decrease, you need a smaller percentage of income to service your loan. This is positive. If you can service your mortgage and you are wanting to buy now, this may be a good time.  However, prospective buyers should consider how secure their employment is and how marketable their skills are, should they lose their job. Having low mortgage rates is one thing, but you need a regular income to support it. The final aspect home owners should consider is whether they can still afford their mortgage payments, if current rates were to rise, say 2%.  If the answer is yes, then this is positive. For those on reasonable incomes, in some of the provincial towns such as Hastings, Palmerston North, and Dunedin (with relatively well priced housing), low interest rates means buying your own home makes a lot of sense.

Fewer Mortgagee Sales
For the first six months of the year mortgagee sales have dropped by 18% from the corresponding period last year. There were 1,008 mortgagee sales for the first half of this year, down from 1,229 in the comparative period. Since the global financial crisis in 2008, mortgagee sales have been over the 1,000 mark (semi-annually). Early on it was mainly over-geared property investors in trouble, but now sales of owner occupied property have increased. This will be due to many factors including excessive borrowing, marriage splits or unemployment.

House Prices
According to Quotable Value (QV), nationwide property values have been gradually increasing this year. They are up nationwide by 0.7%, compared with the same time last year, and only 4.7% below the peak of 2007. There are regional differences. The average sales price countrywide for the past three months has been $402,150.  Auckland has seen the strongest market, over that period, with an average sale price of $529,028. The regions are slightly weaker in general. Average sale prices were: Hamilton $336,577, Wellington $433,178, Christchurch $380,371 and Dunedin $266,073. House prices are expected to continue to firm in Auckland due to the tight supply situation and the fact that city is continuing to attract more people.

Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender 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.