Issue 2017 / 10 16 June 2017
Welcome to the tenth fortnightly General Finance Mortgage Commentary for 2017. 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 16 June 2017) the money markets were at the following levels:
Official cash rate 1.75% (unchanged)
90 day bill rate 1.94 (down from 1.96%)
1 year swap rate 2.00 (down from 2.02)
3 year swap rate 2.36 (down from 2.38)
10 year bond rate 2.73 (unchanged)
NZ/US dollar 0.7206 (up from 0.7061)
Reserve Bank Debt to Income Restrictions
In our last commentary, we mentioned that the Reserve Bank is considering using debt to income ratios (DTIs) to determine how much an individual or a couple can borrow. In simple terms, a bank will only be able to advance a loan of five times someone’s income (the RBNZ’s currently preferred limit). The United Kingdom already has this restriction, and it is set at 4.5 times. The Reserve Bank is implementing this, as its sees uncontrolled lending, particularly in a rising interest rate environment, as a threat to the country’s financial stability. This is a fairly blunt instrument. It fails to consider how much of your working life you have to pay off your mortgage. A 25 year old has forty years to pay off their mortgage, generally has fewer family commitments and so can afford larger mortgage payments. On the other hand, it is quite the opposite for a sixty year old. Writing loans that people can afford, is actually a lender’s role. It is a pity that the Reserve Bank believes this is not being done and that they have to regulate this.
Equity Crowd Funding - Good or Bad?
This type of equity funding is typically available to smaller businesses, who wish to raise outside equity, for the purposes of growth and expansion. Raising equity for business expansion is always difficult. Most businesses have to issue a detailed product disclosure statement, to ensure that future investors are fully informed. Equity crowd funding is designed to raise small amounts of money, without providing so much detail. The issue is that two different standards are operating. We are concerned that equity crowd funding is relatively unregulated, whereas larger concerns adhere to a much stricter regime. Are we setting ourselves up for another sub-prime style collapse, in the equity crowd funding space? It seems strange that lending, the giving of finance advice and fund raising by banks and finance companies is getting more regulated, yet equity crowd funding is less regulated.
Tenants’ Liability for Damages
Homeowners should have two types of insurance concerning their property: Home and Contents insurance. If you are renting a property, this does not mean you should not have any insurance. There are a number of Contents insurance packages, designed for those who are renting. These policies not only cover you for loss, theft and damage of your own household goods, but also any liability that a landlord may pursue you for, such as accidental damage caused by say a fire or internal flooding.
Looking for Funds
General Finance is not only a lender, but is also a deposit taker. We can accept funds from the public. Our top rates are 5.50% for two years and 5.75% for three. This is considerably better than bank rates. If you have funds to invest please do not hesitate to call us. We are happy to receive funds from financial planners and pay brokerage to approved providers.
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.