BACK YARD CRICKET

The international credit crunch continues to bite with the repercussions felt far and wide.  The majority of our mainstream banks have pulled back their maximum loan to value ratio (LVR) to 80%.  This is severely impacting the housing market, particularly for first home buyers. 

Majesty still has access to a couple of lenders operating in the up to 90% LVR space and one still able to lend to 95%.  Never before have the services of our business been more relevant. 

As always our main focus is our client's ability to re-pay their loan on an on-going basis.  Make sure you budget in these tougher times, you can complete your budget on our website http://www.majesty.co.nz/main1budg.asp or another great website is www.sorted.org.nz/home/sorted-sections/budgeting.  Likewise, it is a key time to make sure that you are financially protected and prepared for life's events - planned or unexpected by having the right insurances in place.  If you want a new quote completed or your existing insurance re-quoted please give Barbara a call on 0275-112-610 or barbara@majesty.co.nz. 

Despite all of the negativity of the past 6 months we believe our own back-yard is well placed heading in to 2009. 

Make sure you celebrate your Christmas and the ensuing summer holiday in true Kiwi fashion.  Wear your flip flops, board-shorts, rugby shorts, budgie smugglers, fluro's, floppy hats, sunnies and tye-died sarongs.  Wear them with pride and make sure you have a game of BYC or use your new swing ball set.  What ever you do relax and thoroughly enjoy the festive season!  

MARKET REPORT

The Reserve Bank met this month on Thursday December 4th.  The drop in the official cash rate (OCR) which influences mortgage interest rates was a record 150 basis points.  It is not expected to stop there with a view that the medium term goal for the official cash rate needs to be 4% to stimulate growth (currently it is 5.00%).  It has literally dropped like a stone due to international credit conditions never before seen in our life-time.  The OCR is now at it's lowest since 2003 and if the target rate of 4% is achieved that will see interest rates return to their lowest since the late 1990's!

Unfortunately, while reducing interest rates is certainly very beneficial the economy will not recover solely on the back of these cuts.  The world wide recession that we are in has a severe impact on our major export economy, tourism and with commodity prices dropping faster than the dollar the record dairy payouts stimulating the rural sector are being revised down.

While we are not political commentators the change of government probably occurred for us at the right time with the expectation that the government will continue to announce further economic stimulants prior to Christmas and in to the New Year.  Another round of tax cuts are on their way, timed for April 2009 and an increased level of support for those who lose their jobs.

While housing consents in October hit an all time low and banks continue to tighten their lending criteria (a move akin to locking the stable door after the horse has bolted!), household affordability continues to drop and at some point will stimulate both investors and home owners back into the property market.

Our current recommended borrowing strategy is probably even more short term focused than our most recent advice of looking toward the 6 month or 1 year rates as offering the best value.  We now firmly believe that the sweet spot in the interest rate curve is clearly with the 6 month term and with such uncertainty around where interest rate cuts will stop, fixing for any longer would not be wise.

CONRAD'S COMMENTARY

In great Kiwi tradition the majority of us hit the road (safely) to go to the beach or lake for our Christmas Break.  After a very successful Grand Slam tour we thought we would ask Conrad the following:

Your favorite place to holiday over the Christmas break?

"For me the Christmas break always involves heading back to New Plymouth to be with the family for a few days over Christmas and then a lad's roady over New Years.  This routine has been pretty well established ever since school and things kick off with Christmas Eve drinks which is always a mass reunion of mates who, like me, have moved away from the Naki since school but all return to see family.  Over recent years a Lawn Bowls tournament has been arranged to facilitate the catching up and drinking, but every year it has ended with a great crowd in some of New Plymouth's favorite watering holes until midnight, when the Dooley's amongst us make our pilgrimage up to St Joseph's church for midnight mass.

Following Christmas and Boxing Day with the family, the lads....with the addition of girlfriends over recent years....try and find a sunny spot to see in the New Year.  No real favorite spot, we always say it's the company that makes the trip, and with a dozen mates you can't really go wrong.  If I had to choose one, Great Barrier Island last year was pretty special, but Paihia, Nelson, Cooks Beach, Waihi have all been amazing....New Zealand has too much to offer to limit myself to one place".

MYTH BUSTER

Am I better off breaking my mortgage?

It really depends on a case by case basis.  A fee is charged to break your mortgage if rates are lower that when you originally fixed your term-loan (if it is in the banks favor i.e. the rates are higher than when you originally fixed your rate, then there is no charge).

The fee is called an Early Repayment Adjustment (ERA) based on 'Mark-to-Market' and it is written in all bank mortgage documents.  The fee is a calculated based on the size of the mortgage, how far interest rates have fallen since it was fixed, and the remaining fixed term.

The penalty fee is complicated but roughly equates to $1,000 per $100,000 borrowed for every 1% fall in rates (for every year remaining of the fixed rate term).  So if interest rates fall by 2%, a customer with a $400,000 mortgage on a 3 year fixed rate with 2 years still to go will face a penalty fee of around $16,000!

If you cannot pay this fee and have to capitalise it (adding it onto your existing mortgage over 25 years) you will then be charged significant interest on the $16,000 fee (up to $18,000 based on 7%).  As a result, this provides no benefit to breaking your fixed rate and it is best to wait for your current fixed period to end.  Remembering you hope to time it right and benefit when your fixed rate comes off by fixing long-term on a low rate.

MONTHLY COMPETITION

This month's monthly competition is:

The first person to e-mail us detailing the best 6 month residential carded rate.  This is on our website under the residential daily rates tab.

October's winner was Carl Perkins from RE/MAX, Wellington - don't worry Carl we are dropping off today!  Carl was the first to highlight that we had super imposed our faces in to the myth buster's photo.

REFERRAL REWARD

Like any small business the majority of our work comes from word of mouth - from people just like you!  We always acknowledge our referrers, as without you we would not be in business.

This month for every deal referred (that settles) to either Majesty Mortgages or Majesty Insurance & Risk we will send you a $50 petrol voucher.  You will be cruising around town on us (let's hope this does not mean the Majesty Merc will have to be parked up for the month ;-)

THE FINAL WORD

Due to the great success of our monthly newsletter ;-) and after a 14 year absence TVNZ has decided to bring back the iconic television character the Goodnight Kiwi.  For further information go to:

www.stuff.co.nz/4778574a1860.html.  

During the Christmas break we will be diverting our land-line to our respective cell phones.  If for some reason we do not answer, please do not hesitate to leave a message as we will be clearing our messages periodically. 

Majesty would just like to take this opportunity to thank every single person for making a hard 2008 successful for us. 

Thank you and have a very Merry Christmas and a Happy New Year!

This newsletter is a necessarily brief and general summary of the subjects covered and does not constitute as advice. The information contained in this newsletter is given in good faith. Neither Majesty nor any other person involved in the preparation of this newsletter accepts any liability for any opinions or information contained in it or from any consequences flowing from its use.