Issue 2017 /22       1 December 2017

Welcome to the twenty-second and last 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 1 December 2017) the money markets were at the following levels:

Official cash rate    1.75% (unchanged)

90 day bill rate       1.91 (down from 1.92)

1 year swap rate    1.98 (down from 2.00)

3 year swap rate    2.30 (down from 2.35)

10 year bond rate   2.72 (down from 2.87)

NZ/US dollar      0.6830 (down from 0.6850)

 

2017 Year in Review

This year has been kind for second tier lenders, such as finance and mortgage companies. They are receiving more applications than they generally can fund. The main reason for this is that the banks have tightened up on their lending criteria. This is a sensible strategy by the banks, as two or three years ago some of their lending was of poor quality, to say the least. At one stage we were losing finance company lending proposals to our banking competitors, which was ridiculous. This has now stopped and we are in a more rational lending environment.

 

Crystal Ball for 2018

During 2017, the economy performed well in this country. The major event for the year was a change in Government, which will alter things. There is evidence that they will spend more but we have not been told how they will fund this. The Government must either increase taxes, which will invariably push up prices, or borrow more, which will affect our exchange rate and credit rating.

As a country we are dependent on temporary foreign migrant labour to process our farming and horticultural products. Any restrictions on immigration will negatively impact on this sector.

The increase in the minimum wage will increase prices, as it costs more to employ people.  This will be particularly noticeable in our labour intensive industries, such as cafes, restaurants, shops and petrol stations. Skilled labour will demand more pay, just to preserve their relativities with unskilled labour.  We have started to see the increase in prices already - just go to any supermarket.

Our political situation is unstable, with three quite different political parties holding power. If differences between them do become strained, the impact, in the first instance, will be seen in a falling exchange rate.

 

Next year should be a good year: our economy is still performing well, and the global outlook is positive. The one negative, which is a big one, is the ongoing political management of this country.

 

Next Year for Us

We expect the coming year to be positive for us. There will be encouragement from the Government to build more homes. This will benefit us, as people will continue to move houses and we are active in this bridging market. There are always investors out there sourcing rundown properties, in order to tidy, improve and sell them. We are in this market. We expect continuing demand from those wishing to buy and expand their businesses. If they can offer residential property as security, we are happy to fund these.

 

Housing Sector

The Reserve Bank has announced this week, that it will change (only slightly) some of its loan to value ratio (LVR) restrictions. They will increase the number of high LVR loans (over 80%) allowed by the banks to 15% (from 10% of their total residential lending to owner occupied homeowners). This is positive for first time home buyers. We believe that it should be increased further, to say 20%. There will also be some easing of the LVR restrictions to property investors. This is in response to the easing of the markets, particularly in Auckland and Christchurch.

 

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.