Archive | Cairns Lockie

Lender raises “no financials” limit as Bollard issues his warning

Published 4 November 2005


The Reserve Bank governor’s petulant rant this week – that a high proportion of New Zealanders are ignoring his previous ineffectual policy statements by continuing to invest in property well into a boom – was followed on Friday by financier Cairns Lockie Ltd saying it had increased its “no financials” loan limit to $5 million.



Cairns Lockie said when it launched its “no financials” mortgage category these loans were aimed at the self-employed who are unable to verify their income based on past accounting information, though their current cashflows are satisfactory.


It’s a category of people that’s always been on the outer in a country where loans are almost universally tied to real estate – the underlying fact of life militating against any change in thinking by borrowers.


Cairns Lockie said today it would lend up to $1 million/dwelling and up to $5 million/individual borrower: “Traditionally the self-employed have found it much harder to borrow than those on wages & salaries. Our ‘no financials’ home loan makes it easy for the self-employed merely to declare their income on a one-page form, without going through the lengthy process of obtaining accounts & cashflow forecasts for their company.”


The company said the larger individual exposures would also be available for investment rental properties.


As the finance sector comes under the spotlight amid warnings that loan defaults are on their way, Cairns Lockie also issued advice on what investors should look for in a finance company when they’re considering investing in it:


1)     background, training, skills & the qualifications of the directors


2)     quality & the type of the loan portfolio and whether there are any impaired loans


3)     related-party transactions


4)     percentage owed by the 6 largest debtors


5)     amount of equity.


Cairns Lockie has a prospectus-issuing finance subsidiary, General Finance Ltd, and directors Williams Cairns & James Lockie said they were well qualified, with a number of years’ experience in the industry.


“Our loan portfolio is confined to purely the residential home market – we do not lend on cars, computers or chattels. We do not have any impaired loans. We do not lend to ourselves, companies related to us or our staff members. Our 6 largest loans make up only 32% of our portfolio. Our equity ratio, at 40.34%, is one of the highest in the industry, but this will decrease over time as we grow. It is a huge plus to be well capitalised right from the beginning – this should give our investors a high degree of comfort. Importantly, the directors & their families are investors themselves.”


One of Reserve Bank governor Alan Bollard’s complaints seems to be that he realised too late the extent to which New Zealanders had borrowed at fixed loan rates, and that because of that type of borrowing his attempts to regulate the market through official cash rate rises were having les & less effect.


What should the borrowers do? Switch to floating rates so they can be gouged again, as happened after the mad Muldoon freeze was lifted by the incoming Labour government of 1984? In that era, first mortgages got as high as 30% and homeowners had no control.


Until 1984, residential borrowers were confined to first, 2nd & 3rd mortgages. Over the next 20 years the finance sector has become far more sophisticated & flexible, as Cairns Lockie again mentioned in discussion of revolving lines of credit for property investors: “One of the great flexibilities of the modern mortgage which we offer is that they provide true ‘come & go’ facilities. This means a floating type of mortgage you can repay at any time and redraw when you want to. Basically, a modern mortgage operates like a giant overdraft facility but at much lower rates. These types of mortgage facilities are ideal for property investors. For instance, if a property investor or anyone else has headroom available in their mortgage and wants to put a deposit down on a potentially good buy or wants to carry out some improvements on a property, funds are readily available. The great feature of today’s mortgages is that most of them have a high degree of flexibility built into them.”


If you want to comment on this story, write to the BD Central Discussion forum or send an email to bobdey@propbd.co.nz.

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Lender’s view – interest rates have peaked, investment opportunities shifting

The partners at residential lender Cairns Lockie Ltd, William Cairns & James Lockie, believe interest rates have peaked but it will be late in 2005 before any fall in rates is likely.


In their closing commentary for the year, they said: “Rates pretty well reflect the state of the economy. Currently we have a robust economy, low unemployment plus a strong currency. Any weakening of the economy will see lower interest rates after a lag period.


“We believe the housing market will be mixed over the coming year. There are a number of apartments currently being completed so we see some softening here, particularly in Auckland. Some residential landlords are telling us it is now getting harder to let their properties. This is due to more stock coming on to the market and lower immigration.


“We see a continued demand for well located owner-occupied dwellings in prime suburbs as well as coastal properties.”


Website: Cairns Lockie

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Cairns Lockie lending on apartments – above 40m²

Mortgage firm Cairns Lockie Ltd said in its latest newsletter it will lend up to 90% on apartments but they must measure at least 40m². The firm can also now offer construction loans for owner-occupiers or rentals.


“As inner-city apartments become more popular, more borrowers want to raise mortgages against them. It is also seen as the part of the market, rightly or wrongly, that is the most exposed to any property price correction.


“Lenders are taking a cautious approach. Our current criteria are that an apartment must be a minimum of 40m² and we will lend up to 90% of the lower of purchase price or valuation. We do not mind whether the apartment is used for rental or is owner occupied.”


 Williams Cairns & James Lockie said apartments are starting to become a suburban feature, generally in much smaller blocks. “Lenders are not so strict with these and you can often borrow up to 90%.  We can lend up to 65% with our No Financials loans.”


They said construction loans were often the most difficult type to get approved, “but if the right information & processes are followed they are straightforward.” Intending borrowers need to identify a block of land and get a fixed price contract with a licensed builder.

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Cairns Lockie gets extra wholesale funder

Cairns Lockie Ltd has added another wholesale funder to its loans sources and has begun introducing new mortgage products & terms.


The Auckland-based non-bank lender also pointed out today how the Reserve Bank’s increases in interest rates hurt the group least able to cope – first-home buyers.


Cairns Lockie partners William Cairns & James Lockie said in their regular newsletter that, as a non-bank lender, they relied on wholesale providers for funding. 20 years ago a company like that would have operated like a building society, having to pull in retail deposits.


Their main funder has been AMS (NZ) Ltd, an Australian wholesale funder. From this week they’ve added ANZ Bank subsidiary Origin (NZ) Ltd to their sources, which they said would enable them to add several products to their mortgage range.


“It is our aim at Cairns Lockie to have one of the most extensive ranges of residential mortgage offerings in the market. We are nearly there & have some more developments coming,” they said.


3 of their changes are:

an increase in maximum exposure on a single dwelling from $750,000 to $2 million (and possibly beyond that), still with evidence that it can be serviced
increasing exposure to individual borrowers over several properties from around $1-1.5 million to around $3-3.5 million. Cairns Lockie said a number of existing clients should benefit from that, and
greater latitude to lend on a number of residential properties, including lifestyle blocks & inner-city apartments.

“First-home buyers have it tough”


Cairns Lockie said an unseen consequence of mortgage increases was the effect on first-home buyers, particularly those with a single income.


“6 months ago, a first-home buyer was able to borrow at around 7%, but now the rate has increased to 8.5%. On a $200,000 mortgage for a 25-year term, repayments will have increased around $200/month. At the same time, houses over the past 6 months have not dropped in value, they have actually increased, even in a higher interest rate environment.


“The Governor of the Reserve Bank, in his move to slow the economy, is actually hurting a group that wants to purchase an owner-occupied property. This group is not speculating on rental property, they are not into excessive personal consumption as they are actually saving their deposit, they are an unseen group, being hurt by rising mortgage rates & house prices.”


Website: Emortgage

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