Issue 2016 /2 26 February 2016

Welcome to the second fortnightly General Finance Mortgage Commentary for 2016. 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 26 February 2016) the money markets were at the following levels:
Official cash rate 2.50% (unchanged)
90 day bill rate 2.56 (down from 2.76)
1 year swap rate 2.55 (down from 2.70)
3 year swap rate 2.47 (down from 2.85)
10 year bond rate 2.97 (down from 3.54)
NZ/US dollar 0.6723 (down from 0.6750)

Interest Rates
Currently borrowers are experiencing mortgage rates at fifty year lows. The question is, can they go lower? This all depends on the state of the economy. One positive in New Zealand, is that our unemployment is relatively low at 5.3% (although this varies in the regions). What is surprising, is that our low unemployment rate is not fuelling inflation. Inflation remains virtually at zero. On the negative side there is some instability in the global financial markets and many of the emerging markets, such as Brazil, have seen their economies deteriorate. As a result, interest rates will certainly not increase this year in New Zealand. Our dairy sector remains sluggish and our dollar continues to be firm. We are likely to have one further interest rate decrease sometime this year. This is good news for those with mortgages.

Real Estate and Money Laundering
Anyone who has recently tried to open a bank account or invested money will have had to comply with the provisions of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. The requirements are strict. There is one sector where money is being laundered and where the requirements are less onerous - the real estate sector. Nominee companies are being used, rapid buying and selling makes tracking the real owners more difficult, and money is still being received directly from overseas with no real checks on how it was earned. Overseas owned companies are also being used. We believe that our legislators are aware of this and further laws will be forthcoming. This will be on top of what was implemented last October (with offshore buyers having to obtain a NZ IRD number and open a local bank account).

Product Disclosure Statement (PDS)
Until this year, if you were investing money in finance company debentures, corporate bonds, and other financial instruments you were given a prospectus and investment statement. Over the years these documents have progressively become bigger, as more and more information had to be disclosed. It reached a point where most become obtuse, far too large and confusing to read. This has changed and a new document, a Product Disclosure Statement (PDS) is now provided. These documents are much shorter in length, in an easier to read format and contain essential information only. We have just released ours and we are the first finance company to migrate from a prospectus to a PDS. If you are looking at investing with us, we would be most happy to send you a copy, or alternatively you can download one here http://www.general.co.nz/PDS.htm.

Bridging Finance
One of our product lines is bridging finance. Our main point of difference is that we do not need a guaranteed takeout, unlike the banks. We can lend to someone who is, for example, buying a house in Tauranga, but have not started marketing their existing property in Hamilton. We are happy to look at say a six months loan to allow the borrowers the maximum amount of time to sell their property and hopefully get the best price.

Mortgage Interest Rates
For updated mortgage interest rates, either for new business or applicable to your existing loan, please contact your Lender (below) or the General Finance Limited Loan Administration Department.

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.