Issue 2016 / 22 9 December 2016
Welcome to the twenty-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 9 December 2016) the money markets were at the following levels:
Official cash rate 1.75% (unchanged)
90 day bill rate 2.05 (up from 2.03)
1 year swap rate 2.10 (unchanged)
3 year swap rate 2.46 (unchanged)
10 year bond rate 3.19 (down from 3.20)
NZ/US dollar 0.7180 (up from 0.6998)
The 2016 Year in Review
This year has been a year of two halves for us. The first part of the year was quiet - we had surplus funds and a relatively small number of mortgage applications being forwarded to us. This changed in August, when we started receiving an increased number of lending proposals and this has continued. The question is why has this occurred? We believe the banks have tightened up their lending criteria, which means there are more applications for us. We think this trend will continue and as a result, we are looking for additional deposits to fund this growth.
Crystal Ball for 2017
Despite some turbulent events this year, such as Brexit and the recent American election, the economic outlook for NZ Inc actually looks surprisingly good. Interest rates are at historic lows and the Reserve Bank may cut one more time next year. This will not cause interest rates or mortgage rates to decrease - quite the contrary, they will rise. Banks are looking at increasing their NZ based deposits and the only way to do this is to increase their interest rates. It is becoming more expensive for the banks to fund their increasing mortgage books using offshore funding, so mortgage rates will increase. The increase in deposit and mortgage rates will be relatively modest - between a quarter and half a percent. Dairy prices have bottomed and will gradually improve. Tourism will continue to grow. Our currency may ease in the coming months, particularly if the Reserve Bank cuts the Official Cash Rate again. Unemployment is at a low of 4.9% and may well decrease further. The economic outlook for this country appears sound for 2017.
Next Year for Us
We believe that next year will be a good year for us. The lending environment will continue to be favourable for us, which means we can pick and choose what we wish to lend on. Our arrears have been steadily decreasing this year, which is positive. Our lending margins are conservative - we lend to 70% on first mortgages and 65% on second mortgages, secured over residential properties only. If there is a correction in the property market, we have a sound level of protection already in place. Next year is about growing our mortgage portfolio in a prudent and businesslike manner.
Second Tier Mortgage Sector
Second tier lenders, such as ourselves, are receiving considerably more mortgage applications. This is due to the apparent credit tightening of our banks. There are relatively few of us remaining - over 80% of the finance companies have gone, most building society and solicitor nominee lending no longer exists, and mortgage trust sector is down to one player. The few players left are all running low on funds. Over the past ten years, a large number of New Zealandowned and operated second tier lenders have left the market. The Government, with tightening regulation, appears to have been quite willing to allow this to happen, which is odd. Now, more than ever, we see the need for a strong and vibrant New Zealand owned and operated second tier finance sector.
As this is our last newsletter for the 2016, we wish everyone a Merry Christmas and a Happy New Year. Our next newsletter will be on 10 February 2017. We appreciated your support this year and look forward to working with you in 2017.
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.