Issue 2014 / 8   23 May 2014

Welcome to the seventh 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 23 May 2014) the money markets were at the following levels:
Official cash rate    3.00% (unchanged)
90 day bill rate       3.40 (up from 3.32)
1 year swap rate    3.67 (up from 3.66)
3 year swap rate    4.18 (up from 4.15)
10 year bond rate   4.29 (up from 4.28)
NZ/US dollar      0.8580 (down from 0.8646)

House Sales and LVRs
It appears the Reserve Bank’s recent actions of bringing in loan to value ratio restrictions and increasing interest rates is having an impact on the Auckland property market - sales (or volumes) are down. For April this year, in the Auckland area, there were 811 house sales, down from 1,032 a year earlier and well down, on 1,392 for March. It has to be noted that there were two public holidays during April, being Easter and ANZAC day.  The loan to value restrictions are certainly keeping a number of first home buyers out of the market. The slowing of the market has not had an impact on house prices - they continue to remain firm.

NZ Budget
Our national budget was presented last week with little comment. We will be in surplus in the 2014/15 year. There was nothing in the budget to assist first home buyers or to encourage this group into the housing market. There was nothing adverse or positive for property investors either. Overall, it was neutral for property owners. The advantage of having a surplus is that the Government’s demand for borrowing decreases, which does take some pressure off interest rates. Greater stability of interest rates is a plus for those with mortgages.

Capital Gains Tax
Over the past few years, several commentators have said that a capital gains tax will assist in making property more affordable. We do not see the logic here. If we look at the Australian situation, most residential property is exempt, as owner occupied homes are exempt from this tax.  After it was introduced in Australia in the mid 1980s, houses prices continued to appreciate - there was no drop. Even today, with a capital gains tax, Sydney and Melbourne are both considered expensive property markets alongside Auckland. 

Low Doc Loans
General Finance is a short term provider of residential finance for terms up to two years. We are continuing to offer our low doc loans, which are well supported. What makes us different from other lenders is that we do not mind a certain level of credit issues or problems. We are happy to consolidate other smaller, more expensive, consumer type loans.

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.