General Finance Mortgage Commentary

Issue 2014 / 16  12 September 2014

Welcome to the sixteenth 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 afternoon (9.00 am on 12 September 2014) the money markets were at the following levels:
Official cash rate    3.50% (unchanged)
90 day bill rate       3.71 (up from 3.70)
1 year swap rate    3.82 (down from 3.83)
3 year swap rate    4.22 (up from 4.18)
10 year bond rate   4.23 (up from 4.10)
NZ/US dollar      0.8182 (down from 0.8390)

Interest Rates on Hold
The Official Cash Rate was left unchanged this week.  The consensus amongst financial market commentators is that there are unlikely to be any more rate increases this year and the next increase may be as late as June 2015. This makes sense, as we currently have the highest interest rates in the OECD.  Our exchange rate is high, although it has eased back slightly in the past couple of months. Any rate increases have the potential to increase our exchange rate, with a consequent negative effect, on our exporters.  Our main offshore earner, dairying, will provide considerably lower returns over the next twelve months. Although our economy has improved, it is not roaring ahead.  A day spent in most provincial towns will tell you that. This is good news for those with mortgages - there will be stability in this market for another six to nine months.

Hamilton is Well Placed
Comparing house prices before the global financial crisis in 2007 with now, in most parts of New Zealand (excepting Auckland and Christchurch), they are pretty much the same. Many areas have fallen in that period, including parts of Northland, Manawatu, Gisborne and Wanganui. Hamilton has seen little growth in prices but this may change. Hamilton is growing and it is in close proximity to Auckland. We believe that some of the spill over from Auckland will come to Hamilton, which has to be positive. 

More to House Prices
When discussing house prices, there are genuine reasons why they have been increasing. One is the size of houses, which in fact have doubled. Back in the 1960s, the average house was 90 -100 square metres with a single bathroom. By the late 1980s, they had increased to 138 square metres and to 174 in 2001.  The average house size is now 198 square metres. Most new dwellings now have at least two bathrooms. Kitchens are more sophisticated and expensive. Houses were still being built in the 1960s without garaging, whereas today a double garage is considered standard.  All these factors have helped pushed up general house prices.

Asset Loans
Another area in which we are lending is in the provision of asset loans. This is where our primary concern is with the quality of the security being offered.  Credit history and cash flow are secondary. We still have to ensure that the client can service our loan, but this may be based on the sale of the asset and in some cases we can capitalise the interest as well. These types of loans are ideal for people restructuring their affairs and our facilities give them that extra 6-12 months to do this.

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.