General Finance Mortgage Commentary

Issue 2015 /2 6 March 2015

Welcome to the second fortnightly General Finance Mortgage Commentary for 2015. 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 6 March 2015) the money markets were at the following levels:
Official cash rate 3.50% (unchanged)
90 day bill rate 3.64 (unchanged)
1 year swap rate 3.57 (down from 3.59)
3 year swap rate 3.62 (unchanged)
10 year bond rate 3.36 (down from 3.40)
NZ/US dollar 0.7477 (down from 0.7515)

Lending Restrictions Should Apply to Auckland Only
Most people will agree that the only really overheated market in thecountry is Auckland. Therefore, the current loan to value restrictions,implemented by the Reserve Bank, should only apply in Auckland. Thisappears to be sensible. We should actually be encouraging first homebuyers to borrow, even if is above the 80% levels, to acquire dwellingsin such places as Dunedin, Palmerston North and Hamilton. Some peoplehave said that if this was the case, it may encourage people to game thesystem and borrow excessively on their houses outside of Auckland, sothey could in fact buy in Auckland. A few might do this but we think itis highly unlikely, due the existing price differentials. The bestpolicy is to actually try and encourage buyers to purchase only inprovincial areas and have loan to value restrictions only in the areaswhere there is a problem, that is Auckland.

Providing ID
Since the anti money laundering legislation has become law, deposittakers and lenders are required to ascertain the exact identity of thepersons or entities they are carrying out business with. As a providerof financial services, we do not like going through this process anymore than the general public does, but it is the law. As providingdetails of identification is becoming more routine, it would speedthings up if borrowers or depositors have their passports or drivinglicence with them or provide details of them with their mortgageapplications.

Debt Consolidation
For a variety of reasons, individual can acquire numerous short termdebts, such as store cards, credit cards, hire purchase, and short termloans. These debts have high interest rates and require capital paymentsas well. If a payment or two is missed, these quickly appear on yourcredit reports and as a result it is difficult or impossible toconsolidate your debts with a trading bank. The solution is with us - wewill consolidate your various loans and your mortgage into one loan withone regular repayment. Once a suitable credit history has been build upwith us, often in 6 months to one year, you can then refinance with amainstream lender.

Housing Shortage
There is a housing shortage in Auckland. We may be short of anythingbetween 10-15,000 dwellings. There are a number of reasons given forthis, but we believe there is another reason that has not been widelydiscussed in the media. That is in the past five years, we have seen thevirtual extinction of the finance company sector. This sector lent, in alarge part, to property developers and housing construction companies.There is no doubt that this sector need greater regulation, but itsalmost complete demise may be one of reasons we are seeing a housingshortage here in Auckland. This unintended consequence was not foreseenat the time.

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.