Issue 2011 / 20   4 November 2011

Welcome to the twentieth 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 4 November 2011) the money markets were at the following levels:
Official cash rate    2.50% (unchanged)
90 day bill rate       2.73 (unchanged)
1 year swap rate    2.90 (down from 2.93)
3 year swap rate    3.36 (down from 3.44)
10 year bond rate   4.35 (down from 4.68)
Kiwi dollar         0.7948 (up from 0.7935)

Mortgage Rates - OCR
Thursday last week the Reserve Bank reviewed the official cash rate (OCR) and confirmed it will remain at the current 2.5% level. Reasons given are that we are still seeing only modest levels of economic activity and difficult international market conditions. Inflation is still outside the Reserve Bank’s 1 - 3% range, but this is largely due to the one-off GST increase last year. Underlying inflation appears to be around 2%. We are surprised that some economic commentators continue to say that interest rates are going to rise.  This will not happen until we see falling unemployment and an overall general economic improvement. This, given the current conditions, is unlikely to occur until this time next year at the earliest. Anyone in the business environment can plainly see we are still in a recession.  This is good news for those on floating rate mortgages, as their current low rates will remain in place for sometime yet.

Increasing Your Rental Income
Currently, in Auckland, there is a shortage of rental accommodation.  While the supply of housing is not increasing, demand is as more people are coming to live in Auckland. We believe that this trend will continue, largely because it is difficult to increase the supply of housing. One reason is, that due to the demise of the finance company sector, funding is just not available. One way a landlord can increase their rental income is to add on another bedroom. This is much easier than building a new dwelling but it has a similar effect - it increases the amount of accommodation available on the market. There are a number of dwellings built 50-80 years ago, that are small by today’s standards, but are often well located, that could benefit from an additional bedroom. The advantage of doing this is, not only a likely increase in rental, but a rise in the property’s capital value as well.

Insulation and Heating Grants
Two years ago the Government announced a scheme that allowed households to obtain a grant of up to a third of the cost for insulation and installing heating (i.e. heat pumps) in their homes.  So far 120,000 households have taken advantage of this scheme, including 24,000 homes in the Auckland region. There has been some criticism of the providers that they may be hydraulicing their prices.  As with any work being done on your property, we advise you to obtain up to three different quotes, just to ensure that you are obtaining a competitive price.  Just because the Government is paying a third of your bill, does not mean you should accept the first quote you receive, as you are still paying two thirds of the price.

Mortgage Funds Available
We have short term funding available for a number of mortgage proposals such as bridging finance, low doc lending and pure asset lending. The funds can be used for a variety of reasons from business loans, purchasing of plant and equipment, purchasing of boats and even paying your tax. Terms are available up to two years. We welcome your enquiries.   

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.