High mortgage rates defended

Press, 11 October 1979, Page 31

High mortgage rates defended

PA Wellington High interest rates for housing reflect the wish of lenders to protect their savings during a time of high inflation, and not “interest racketeering,” according to the chairman of the Finance Houses Association (Mr J. D. Rose). The interest rates also reflected the risk of lending second mortgages when house prices were

stable or falling, Mr Rose said.

“Lenders want a rate which will keep their savings intact,” he said. Borrowers had benchmark interest rates, such as Government stock, which they had to better to attract money. New Zealand had seen interest rates controlled and funds allowed to flow into such uncontrolled areas as syndicated mortgages, but now at least the forces of free competition were working, Mr Rose said. Department of Statistics figures show that the average interest rate for rural and urban mortgages has risen from about 7.5 per cent in 1973 to 10.86 per cent this year. Flat mortgages, in which no principal is repaid, carry higher interest rates than table mortgages. Mr R. White, Governor of the Reserve Bank, said that increases in interest rates could affect people on average incomes about 3 per cent on their salary for each 1 per cent increase in interest.

This would happen if they had a house mortgage three times the size of their annual income, he said.