Issue 2014 / 6   24 April 2014

Welcome to the sixth 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 24 April 2014) the money markets were at the following levels:
Official cash rate    3.00% (up from 2.75)
90 day bill rate       3.30 (up from 3.20)
1 year swap rate    3.68 (up from 3.64)
3 year swap rate    4.30 (down from 4.35)
10 year bond rate   4.52 (down from 4.59)
NZ/US dollar      0.8608 (down from 0.8720) 

Highest Interest Rates in the OECD
Predictably the Governor of the Reserve Bank increased the official cash rate (OCR) by another quarter of percent, this morning. Our new cash rate is 3.00%, which is the highest rate in the developed world.  The Australian rate remains at 2.5%.  Most other countries are well below 1.00%, such as USA at 0.25%, UK at 0.50%, and the Euro Zone at 0.25%. The question that must be asked is why?  Is our economy doing that much better than say the USA or the UK? Our unemployment remains relatively high at around 6.5% and closer to 10% in some of the provincial centres. As a result our currency remains high which makes it hard for exporters.  Mortgages rates are expected to rise.

KiwiSaver Should be Extended
More first home buyers are accessing their KiwiSaver to assist them in acquiring a deposit in order to purchase a property. KiwiSaver has been going for over five years and some contributors have accumulated healthy balances. We have seen couples, with in excess of $50,000 in their combined accounts.  As a deposit source this is extremely helpful.  We believe KiwiSaver should go further.  The savings providers should be able to offer second mortgages in order to assist their first home buying contributors.  For example: a first home buyer may be able to fund a 10% deposit directly from their KiwiSaver balance. The provider should then be able to offer a 10% second mortgage, thereby allowing the borrower to go to a bank and apply for a standard 80% mortgage.  This assists everyone.  The savings provider can diversify their asset mix with higher yielding second mortgages. It would assist the borrower in getting around the tough over-80% lending restrictions. More importantly it assists younger home buyers into their first home.  

Immigrants Should Have to Build
In our last newsletter we said that non residents should only be able to buy brand new dwellings.  This would mean that the second hand market is left to existing residents although they could still buy brand new dwellings if they wanted to.  Residential construction is a major employer in this country and, by restricting non residents to building new homes, you assist this large employing sector.  We could take this one step further and insist if someone wants to permanently immigrate to this country, priority is given to those who are prepared to purchase a brand new dwelling.  We need to build more houses in Auckland and one way to achieve this is to get the non residents and a number of new immigrants to do this for us.

Good Investment Return
General Finance is a deposit taker.  That means we source our funds from the general public. If you or your family have funds to invest, then talk with us.  We offer an attractive rate of 6.50% p.a. for either two or three years. As part of our offering, we can pay the interest monthly on deposit amounts over $10,000. This is a great way to invest, as you will receive a regular monthly income. This is helpful to many retired people who still have a number of monthly expenses to pay. For more information please contact us so we can send you a copy of our prospectus and investment statement.

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.