AMS Property Gazette - May

I would like to start May’s Property Gazette by saying thank you to all those who visited our new Facebook page and clicked the like button. Your participation is most welcome.

If you missed this opportunity last month and would like to have a look please click here to be automatically taken to the Advanced Mortgage Solutions welcome page.

Mortgage rates have not changed and have held steady since the last round of reductions in mid-February. The mortgage curve has been very “flat” out to 2 years. We still believe the Reserve Bank will move rates up late in 2012 or early in 2013, this would suggest that it might be worth fixing for 2 or 3 years, particularly as longer term fixed interest rates can go up without a change to the official cash rate.

   Our recovery has literally been shaken to a standstill, with major seismic events both locally and in Japan hitting home, the focus of people is survival and recovery not economic growth.

We had started 2011 quite strongly, commodity prices (read dairy) were surging, mortgage approvals were on an upward trend breathing life into the real estate market and confidence was improving overall, not that it had yet flowed through to retailers.

However with the events of Christchurch & Japan hitting us all between the eyes our economy is taking a massive hit with an estimated $15 - $20 Billion of capital destroyed and needing to be replaced. The process of which will stimulate economic growth but having this thrust upon us by having to replace assets lost is not the sort of growth we were looking for.

Thankfully, prudent management by government has seen us in the fortunate position of a strong balance sheet with relatively low levels of debt which allows us to lean on this position to stimulate the growth that is needed.

The Reserve Bank cut interest rates by a surprising and quite whopping 0.50% which with more than half of New Zealanders on a variable rate mortgage currently will be pleasantly felt in the pockets of all of these mortgage holders immediately. Surprisingly we say because while this was described as “an insurance measure” it is still in the face of an inflation rate that sits at the maximum of government preferred scale @ 4%, albeit no doubt we need help given the size of the challenges ahead.

Recover we will though, with Rugby World Cup set to pour millions into our economy and of the course the rebuild of Christchurch set to start a huge cash-flow cycle not seen in this country for many a year.

With interest rates so low many a consumer is unsure as to what the best interest rate option is for them right now but we are leaning to sitting on the floating rate as these are the cheapest in the market in the mid 5% range and we cannot see any increase on the horizon in the immediate future, in fact we do not believe that we will see any increases until the very back quarter of 2011 and maybe not until early 2012. Why pay 6.40% now we you can enjoy mid 5%?

What's Hot
With the above reduction in interest rates, the Variable rate is certainly hot right now, with the 0.50% off rates this has equated to a saving of over $1500.00 per annum on the average mortgage, coupled with a continuing loosening of bank criteria we are seeing the first home buyer market starting to perk its eyes and ears up.

Deal of the Month
90% LVR lending is well & truly available; the trick is understanding the criteria and knowing how to package the application up so it meets the same. Last month one of our Advisers had a Referrer on his doorstep with a client who had been declined by 3 banks, we got him approved and saved not only his purchase but the 3 backed up on it - Call us we deliver!

Interest Rate Outlook

   Where do we start? After the disaster of the devastating earthquake in Christchurch last week it seems insignificant to be putting pen to paper about interest but perhaps our best lesson is learned from those most affected with Christchurch simply rolling its sleeves up and getting on with what needs to be done. Our hearts go out to all of those affected.

Just as the earthquake of 4 September disturbed economic activity for some time, so too will this one - probably with greater effect, which means the near zero growth we think occurred during the December quarter is going to be not much bettered in the first quarter of this year (if in fact there is any growth at all).

The interruption to growth is so large that we now see little chance that the Reserve Bank will feel the economy is strong enough to withstand any interest rate rises this year and it is more than likely that we will see interest rates remain flat throughout 2011. While some Economists are promoting a possible interest rate cut when the Reserve Bank meets again on March 10 we do not buy into this theory with no real immediate gain to be felt from this in the area it’s most needed - the Christchurch economy.

The reduced outlook for interest rates implies the Kiwi dollar will stay slightly lower than would otherwise have been the case, especially as inflation appears to be picking up in the UK and Europe raising the chances that interest rates will be increased in those economies this year.

The light trying to shine through the smoke & dust of the quake is the diary sector with Fonterra revising up their forecast pay-out for this season from $7.30 up to $8.00. This payout will incorporate the traditional milk solids pay-out of $7.50 plus a distributable profit range of 40-50 cents, which will boast the rural sector into spending, helping our economy to grow. The above all points to our recommended borrowing strategy changing somewhat from previous months whereby we can now see little chance of interest rate rises this year. As such we are currently recommending that taking the floating interest rate probably makes most sense both now and for the foreseeable future, additionally we note these rates are currently the cheapest on offer in the market in the very low 6% range.

What's Hot

We have seen a further loosening of credit criteria in the early part of 2011 with another two of our core lenders setting clear parameters allowing lending up to 95% LVR for owner occupied purchases. While certain criteria must be meet for applicants to qualify (such as stability of employment and minimum income levels) this is certainly a good sign and further emphasises the increasing appetite of the banks.

Deal of the Month

We had a nice deal approved last month assisting one of our referrers into an investment property with only putting 15% deposit down. To date banks have requested a minimum 20% deposit on investment properties but due to the overall strength of our client we were able to assist. - Call us we deliver!