Issue 2016 / 8        20 May 2016

Welcome to the eighth fortnightly General Finance Mortgage Commentary for 2016.  We aim to keep you informed on developments at General Finance Home Loans and the mortgagemarket in general.  

The Money Market
This morning (9am on 20 May 2016) the money markets were at the following levels:
Official cash rate    2.25% (unchanged)
90 day bill rate       2.37 (down from 2.40)
1 year swap rate    2.29 (up from 2.23)
3 year swap rate    2.34 (up from 2.25)
10 year bond rate   2.69 (up from 2.65)
NZ/US dollar      0.6742 (down from 0.6884) 

Lending Restrictions
There is currently considerable talk in the media that further mortgage restrictions will be implemented. This has become more urgent, as the Reserve Bank is likely, in the immediate future, to cut interest rates at least two more times.  The likely restriction will be a debt to income cap. Basically if you do not have a certain income in relation to your proposed debt, you do not qualify for the mortgage, even though you may be able to afford it. So far we have had loan to value restrictions or asset caps put in place.  The next one is an income cap. This is a particularly blunt instrument, as it raises all sorts of questions, particularly as our employment patterns are changing. Do you include overtime as income (whether it is regular or occasional); how about casual work and seasonal work; how do you treat someone who lives on regular short term contracts. Where does flatmate, boarder income or rental income fit in. Changing work patterns make it harder to define just what is an individual’s full time employment income. In the past, the lenders concerned have used their discretion, but this may be harder if they are trying to carry out a Reserve Bank edict. 

First Home Buyers Must Have a Chance
One of the groups that will be hit by any income to mortgage requirements imposed by the Reserve Bank, is the very group you want to get onto the property ladder - that is the first home buyers.  On paper, many in this group look as if they cannot afford their first mortgage, but as they tend to be younger and flexible, they can often find secondary work or take in flat mates etc. As a country, we must encourage this group into home ownership, so logically first home buyers have to be excluded from any income to mortgage restrictions.

Cheques Will Go
The majority of people are now using internet banking. Regular trips to your local bank branch are becoming a thing of the past. As banks appear to be continuing to move their staff around, particularly in the larger cities, in many cases you do not even know your local bank officers.  The next change we expect to see is the gradual phasing out of cheques. It is unlikely that the banks will say on such and such day they will not accept any more cheques, but they will probably impose a handling fee (such as $25) on each cheque presented.  This will soon stop their use. 

Monthly Income Debentures
As well as being lenders we are also deposit takers.  This means we can receive debenture investments for a minimum of $5,000, from the general public. For those with more than $10,000 to invest, we provide our investors with, what we call, monthly income debentures.  This is where we will pay our interest to you on a regular monthly basis.  This is a popular option as many in retirement have regular monthly outgoings such as electricity, rates, insurances charges and so forth. If you would like a copy of our new Product Disclosure Statement, give us a call or visit http://www.general.co.nz/PDS.htm.

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.