Issue 2016 / 14 12 August 2016
Welcome to the fourteenth 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 12 August 2016) the money markets were at the following levels:
Official cash rate 2.00% (down from 2.25%)
90 day bill rate 2.23 (down from 2.29)
1 year swap rate 2.03 (down from 2.07)
3 year swap rate 2.01 (down from 2.06)
10 year bond rate 2.00 (down from 2.22)
NZ/US dollar 0.7210 (up from 0.7085)
Interest Rates
Yesterday the Governor of the Reserve Bank cut the Official Cash Rate from 2.25% to 2.00%, in a move that was anticipated by just about everyone. One of the reasons to decrease the OCR was to allow our currency to ease, but the opposite happened - our currency actually went up as the market was expecting a larger rate cut. It is unlikely that there will be much impact on mortgage rates - they may go down marginally but not by the full quarter of a percent. This is because banks are increasingly resorting to offshore funding,which has not been getting cheaper. The interesting question is whetherbanks will cut their retail deposit rates. Logically they should, but in recent months, banks have been losing their deposits to the likes of fund managers, and the share and property markets as investors look for better returns. Deposit rates may not drop as the banks need to retain their existing deposit base.
Time to Fix Our Infrastructure
One area of New Zealand (Inc) requiring major spending is infrastructure -particularly roading. We need motorway improvements to and from major towns, as well as more roads in fast developing areas such as Auckland, the Waikato, and post earthquake Christchurch. Interest rates will continue to fall - we believe there will be one or two more rate cuts this year. This gives the Government the opportunity to issue Infrastructural bonds, at extremely low rates of say 2.5% to 3.0%. At these rates, interest payments would besmall. This is a once in a lifetime opportunity to fix up our national infrastructure. These borrowing rates have not been so low since the early 1960s - that is two generations ago. There are buyers for these types of bonds, such as our KiwiSaver providers. This is well worth doing at this time.
Changes to the Residential Tenancies Laws
Over the past few months there have been changes in the tenancy laws which are putting more requirements onto landlords. These include the requirements to insulate, put in smoke alarms and the Government has greater powers to prosecute landlords whose properties breach basic housing standards. We understand that Tenancy Services and the NZ Property Investors Federation are holding seminars around the country to educate landlords on these changes. Further information about these seminars can be found on the Tenancy Services website at www.tenancy.govt.nz or at your local NZ Property Investors Federation branch.
Short Term Funding
We have noticed an increase in the number of people contacting us for short term and bridging funding requirements. We believe that the banks have tightened up in this area. We are happy to consider these propositions and,in certain instances, we will capitalise the interest as well.
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.