Revised S.A.C. scheme eases loan finance

Press, Volume CXI, Issue 32613, 22 May 1971, Page 1

Revised S.A.C. scheme eases loan finance

(From Our Own Reporter) . \ - WELLINGTON, May 2E The Government has approved substantial alterations to the State Advances Corporation house mortgage guarantee scheme to make more loan money available. Details of the alterations, which take effect from June 1, were announced last night by the Minister of Housing (Mr Rae).

The mortgage guarantee scheme aims at avoiding the necessity for

second mortgages at high interest rates, by providing a guarantee to a lender so that a person can borrow up to 90 per

cent of the mortgage valuation of a house with a maximum of $13500.

Previously the scheme provided for a guarantee of the difference between the normal maximum lending limit (60 per cent of the valuation) and 90 per cent, for loans on which the interest did not exceed 61 per cent The scheme was also restricted to insurance companies, savings banks and building societies.

In a move designed to make the scheme even more attractive to lenders the maximum interest rate has been increased to 7 per cent But even more important both the borrower and the lender win now have the choice of two types of guarantee. There will be the existing plan which guarantees the top 30 per cent of the loan up to 90 per cent and a new scheme under which the whole loan is guaranteed. This will eliminate all risk to lenders. Part of the interest charged on any loan is used to offset possible losses through default on mortgage repayments. Since the lender will no longer have to take this into account the guarantee is tantamount to a subsidy on the interest charged. Lamp sum In the case of a loan at 7 per cent the effective subsidy could amount to as much as 1 per cent Effectively then, the return to the lender could be as much as 8 per cent But the subsidy will not be borne by the taxpayer. The borrower will pay a single lump sum fee—which is added to the mortgagecalculated according to the degree of risk to be guaranteed. Where the loan is less than 68 per cent of the value the fee will be 25c per $lOO of the loan, rising in steps to a maximum of $1.85 per $lOO

when the full 90 per cent is guaranteed. The application of the guarantee system has been extended in two ways—the type

of project being undertaken and the source of the loan funds. In addition to loans for the construction, purchase or addition to a house or flat, the guarantee will now be available for loans used to modernise a bouse or flat, and in certain circumstances, for refinancing existing residential mortgages. Guarantees will also be available to a wider field of approved lenders, including solicitors, trustees, employers financing employee housing, and similar lenders, in addition to insurance companies, savings banks and building societies. Deposit gap Mr Rae said that the extensions to the scheme should result in more money I being made available for

housing purposes, and should help more home seekers to overcome the deposit gap. “The conditions of the extended scheme should also encourage the use of table mortgages instead of flat mortgages which would be financially beneficial to the borrower,” Mr Rae said. Mr Rae said that the guarantee scheme made housing loans a better form of investment for private lenders since the element of risk was carried by the State Advances Corporation. Original scheme The original scheme had proved valuable during its 18 years. The corporation has given guarantees in respect of more than 5000 mortgages involving loans totalling $27 million. Last year there were 781 guarantees for loans totalling $6.28m. Mr Rae said that before the scheme was . introduced it was difficult for persons to borrow more than twothirds of the value of the home on first mortgage. The introduction of the housing mortgage guarantee scheme had helped many home buyers; and it was expected that the extensions to the scheme would help many more, said Mr Rae.