General Finance’s director James Lockie give us a Money Market update and review of 2017
General Finance's director James Lockie gives NZ Adviser a Money Market update, and discusses trends for 2018 and reviews the year that's been.
The Money Market
As of Friday, 1 December at 9:00am, 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 Gazing for 2018
During 2017, the economy performed well. The major event for the year was a change in government, which will alter things. There is evidence the government intends to 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 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 announced last week 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.
Related stories:
Body seeks brokers to help shape market
LVR changes unlikely to reverse cooling market
The Money Market
As of Friday, 1 December at 9:00am, 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 Gazing for 2018
During 2017, the economy performed well. The major event for the year was a change in government, which will alter things. There is evidence the government intends to 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 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 announced last week 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.
Related stories:
Body seeks brokers to help shape market
LVR changes unlikely to reverse cooling market
