News - 1 December 2008

The Alpha Update

Policy Changes = De Facto Credit Rationing

ANZ National has followed the ASB Group in announcing a maximum LVR (Loan to Value) Ratio of 80% for new lending. This policy change is in response to the increasing risk premium that continues to be charged by offshore lenders to NZ banks, due to the credit crisis. Other banks are following suit on an informal basis. Banks are very focussed on pricing for risk - the higher the LVR, the higher the interest rate you will pay!

This means borrowers will need a 20% deposit to put into almost any loan proposal. But, what if you don't have 20% saved??

The deposit can come from a number of sources, including..

1. Family Gifts (genuine gifts or interest free loans)
2. Equity in another property
3. Second Mortgages (typically up to 90% max)
4. An equity partner (ie: you buy a property between you)

Vendor finance is almost never considered to be a valid deposit. However, sometimes a vendor second mortgage can make a deal work.

The bottom line is that the days of easy money are over. Borrowers will need to save a substantial deposit before banks will be comfortable in coming to the party. However, there are still options available for lending up to 90% LVR (or more), but at a higher cost to reflect the risk involved. Cashflow is critical and creativity of loan structuring is essential. For that, you need an experienced broker...

Who do you know who needs an experienced mortgage broker who can think creatively? Get them to Call Us Today on 021 676 747 or 0800 676 747 for a path forward.

Food for Thought

"Trying times are times for trying" - anon

What's New??

• Interest Rate Reductions expected
• LVR reductions for most lenders
• Fixed Rate Break Calculator. Email me if you want a copy....... stuart@alphagroup.co.nz

If you or anyone you know wants to know more about any of these products, email Stuart@alphagroup.co.nz

Interest Rate and Currency Comments

The Reserve Bank is likely to cut interest rates substantially again on 4 December, with commentators split between a 1% and a 1.5% reduction in the Official Cash Rate to bolster our economy. Lenders have preempted much of this fall with a 0.7% drop in most fixed and floating rates in the last 10 days, so further significant falls in lending rates are unlikely. However, watch the Reserve Bank of Australia announcement tomorrow (Tuesday) for a hint on how big the drop will be.

The kiwi has bobbled about a bit over the past fortnight, with swings of 2 and 3 cents against the US being "normal", depending on news coming from the US and Europe. More importantly, the kiwi has fallen by around 5 cents against the aussie over the past month, as our smaller economy is more at risk at present. The downward trend for the kiwi will continue whilst international investors face major uncertainties in their home markets.

(See below for latest interest and exchange rates).

The Finance Markets

As of 8am on Monday 1 December 2008 the following Interest Rates applied:
Official cash rate 6.50% (stable)
90 day bill rate 5.47% (down substantially)
5 year swap rate 5.48% (down substantially)
NZ/US Dollar 0.5510 (down slightly)

Current Range of Interest Rates for home and investment mortgages as at 1 December 2008

Floating:
7.95% to 10.40% (down)

Fixed For:
1 Year - 6.99% to 9.96% (down)
2 Year - 7.34% to 9.70% (down)
3 Year - 7.64% to 9.60% (down)
4 Year - 7.85% to 8.50% (down)
5 Year - 7.85% to 9.43% (down)

For a complete table of interest and exchange rates, click here.

The information stated herein was correct at the time of release, but is subject to changes without notice.