COMMENT FROM THE CAPITAL MORTGAGE GUARANTEE SCHEME MAY CLOSE FINANCE GAP

Press, Volume CIX, Issue 32117, 13 October 1969, Page 12

COMMENT FROM THE CAPITAL MORTGAGE GUARANTEE SCHEME MAY CLOSE FINANCE GAP

(From our Parliamentary Reporter)

WELLINGTON, October 12.—A form of mortgage guarantee scheme which has been studied by the Government insurance authorities would permit bona fide home-builders to obtain a loan at first-mortgage rates for a greater part of the value of their proposed house than is possible today.

The intention is to try to close the gap between the present-day cost of sections and houses and the limits on low-interest loans. It is accepted that, particularly in the main centres, many couples are proceeding to the point where a housing permit has been obtained, and are unable to begin building because of their lack of suitable finance.

Between January and August this year 15,520 housing permits for buildings worth a total of $126,700,000 were granted. This was the highest total for some years, and was 9.2 per cent ahead of the figure for the same period in 1968. The record for completed buildings, however, was below the figure for 1968. Inquiries made in Auckland some months ago indicated that firms specialising in housing construction were concerned at the number of initial inquiries which were not followed up. There was evidence of men being laid off. This was confirmed in Wellington and Christchurch, though it was not of such serious extent as in Auckland.

Although costs have risen, the value of building work put in hand is understood to be some $25,000,000 below the figure for 1966. The slow rate of house-building indicates that there is an increasing gap between targets and completions. Needs Assessed Various attempts have been made to assess the housing needs of the nation. The National Housing Council made its last assessment in 1966, since when it has not been reconvened. The Building Industry Advisory Council carried out a similar exercise last May. As a point of interest, the estimates of these two expert bodies coincided. In the three-year period ended March 31, the assessed requirement was 80,400 ] houses; but actual comple-] i lions totalled only 69,800.] This gap appears to be widen-I ing. Interest among potential house-builders has seldom been stronger, but the expert, ence of building and finance authorities has been that the clients seem to lose their interest after they learn of the gap they must fill after all i , reasonable loan facilities have 1 been explored. I The State Advances Cor-, poration experienced an in-1 ] creased demand for first-mart-j ]gage housing finance after May, 1968. This followed the Government decision to in-1 crease the S.A.C. loan limits'] by $5OO to $6OOO, and to allow- i up to 56500 where the client' bad an unencumbered freehold section. Applications for] 3 per cent rebated interest; loans almost doubled when an increase of $2OO in the eligibility limit was announced. Unfortunately this trend did not continue beyond the i

early months of this year. State Advances Corporation authorisations have dropped sharply as from May. In contrast, over the last seven years the demand for second mortgage money has risen sharply. For the year ended March 31, 1963, second mortgage moneys (not all related to housing), totalled $16,300,000. The figure at the end of last financial year was $38,100,000. Second-mortgage interest rates are higher than many potential home-builders can contemplate. Some clients have resorted to third mortgages, “hoping that something will turn up,” but .hardened real estate men are aghast at some of the interest rates being charged. Assessments made by nonGovernment organisations indicate that in the last eight years the cost of building a house in any of the four main city areas has increased by an average of $l2OO a 1000 sq. ft. One source' shows that Christchurch ($999) has had the smallest increase and Wellington ($1430) has had the highest increase. The cost of sections has also risen. In one Wellington estate, subdivided by a local body, the section which cost $2260 in 1961 now costs $3500.

On these figures, a requirement of $lO,OOO for house and section would not be extraordinary. State Advances

Corporation lending limits hit their maximum at $6500, and the existing mortgage guarantee scheme does not go beyond $BOOO. The idea being investigated is for a mortgage insurance scheme whereby the Government would guarantee the loan up to about 90 per cent of the value of the property. The Government's guarantee would be expected to keep the interest rate down—possibly to the level of that of the first mortgage. Similar schemes are operating in Australia, where 90 per cent coverage may be obtained on dwellings owned and occupied by a single family. A special authority would be needed to assess the value of each claim. There are several ways in which such a scheme could be put into operation in New Zealand. One would be for the guarantee to be made by the Government, and for the loan to be arranged through a Government agency. This possibility is being considered.

The other is for a private lending institution or group to make the money available after the assurance of the guarantor has been obtained. This form of backing, however it is carried out, is understood to be preferred to a finance corporation, several forms of which have been suggested over the last few years.