Issue 2014 / 4   28 March 2014

Welcome to the fourth fortnightly General Finance Mortgage Commentary for 2014.  We aim to keep you informed on developments at General Finance Home Loans and the mortgage market in general. 

The Money Market
This morning (9am on 28 March 2014) the money markets were at the following levels:
Official cash rate    2.75% (unchanged)
90 day bill rate       3.12 (up from 3.08)
1 year swap rate    3.57 (down from 3.60)
3 year swap rate    4.29 (up from 4.19)
10 year bond rate   4.61 (unchanged)
NZ/US dollar      0.8674 (up from 0.8559) 

House Market Slowing
Talking with real estate agents and various mortgage brokers, there is a view that the housing market, particularly in Auckland, is starting to flatten out. This was confirmed by the Real Estate Institute of NZ, whose figures in February show that the national sales volume trend is easing. In February, only two small regions, Northland and Central Otago, showed an increase in sales volume, compared with February 2013. There are reasons for this. Over the past three years, house sales and prices have had a strong run in Auckland. The loan-to-value restrictions are having an effect.  Mortgage rates have started to rise and are likely to rise further this year. This creates a disincentive to take out larger mortgages.  Our view is that prices will not drop, they will continue to rise, but more slowly, and sales volumes to will ease during 2014. 

Home Ownership Levels
Over the past twenty years, there has been a steady decline in those owning their own homes. According to the latest census figures, 49.8% of people own, or partly own, the home in which they live, compared with 53.2% in 2006. There are several reasons for this. In certain regions, such as Auckland, dwellings have become increasingly expensive to purchase. Cheaper towns such as Gisborne and areas such as Northland, which also have declining home ownership rates, have seen a decline in a number of higher paying jobs in industries such as forestry, the wharves and in the freezing works. Other industries in these areas have moved out to the larger populated areas.  There is a trend with younger people, to delay house purchases, so that they can have increasing work and lifestyle flexibilities.  We see a role here for KiwiSaver to play in the future. Already savers can withdraw funds to assist them with their deposits - this is good.  KiwiSaver should go further, in providing say second mortgages, to assist their members to fund the 80-95% portion of their first house purchases.

Insurance
The days of organising your insurance on the day of settling your mortgage are long gone. Insurance companies are becoming stricter. They may, for example, insist on an electrician’s certificate, to ensure that the wiring is up to standard. More time is now involved in filling out insurance forms. Full replacement policies are gone - you now have to provide specific details on such things as square meterage and the likely cost of a total rebuild.   You may have to meet with your insurance broker or company.  It pays to get on with organising your insurance as early as possible. 

Sorting Out Your Tax
Next Monday is the end of the tax year. Many, at this time of the year, are focussed on their tax affairs.  For those with tax to pay, we are happy to lend funds for the purposes of paying tax or tidying up tax arrears. Many of the banks will not do this.  The easiest way is to refinance with us.  While there is a higher rate, after six months, if all payments are made on time, in most cases you can go back to a prime rate lender.

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.