Increase in some loan rates tipped

Press, 14 November 1981, Page 6

Increase in some loan rates tipped

The National Government, if re-elected, would boost interest rates for certain housing loans by up to 50 per cent, said Labour's Shadow Minister of Housing (Mr M. K. Moore) in Christchurch last evening. Mr Moore said that his assertion was based on a “sensitive Cabinet memorandum.”

The document indicated that Post Office home ownership account holders, at present eligible for 9 per cent loans, would be “paying through the nose” at market rates of 15 per cent or more if National were re-elected, Mr Moore said. ■ The Press Association reported from Wellington that the memorandum, signed by the Minister of Housing (Mr Quigley) reviews the preference given to Post Office Savings Bank home ownership depositors for Housing Corporation loans. It was made available by Mr Moore to reporters in the Parliamentary press gallery. According to the document, approximately 2800 applications could be immediately affected by changes recommended to the Home Ownership Scheme. The document points out that when the scheme began in 1973 lending institutions other than the Post Office could offer competitive interest rates. However, through the scheme, borrowers can draw on Housing Corporation funds at lower interest rates than they can find in the private sector. “The effect of these developments is that the P. 0.5.8. has become the “preferred place” of deposit by the observant home-saver and there is comment from some institutions that their inability to compete forces them to advise would-be depositors to go to the P. 0.5.8. in their own interests.” the document says.

The document says that the Post Office is itself seeking approval for the granting of first mortgage loans. At present it is confined to second mortgages. “If this is granted, then the P. 0.5.8. will be in a position to meet its own obligation to its home ownership depositors and its arrangement with the Housing Corporation

should be terminated," the document says.

“If approval for first-mort-gage lending is not given, then the anomaly of the interest rate differential should be removed. This could readily be done by the Housing Corporation being given the authority to charge those P. 0.5.8. Home Ownership Scheme applicants who do not meet the normal Housing Corporation criteria for rebated interest rates an interest rate commensurate with the level being charged by savings banks and those building societies within the scheme.”

“The effect of this policy will be to boost weekly loan repayments by up to 50 per cent,” Mr Moore said. “This is in direct contrast to the Prime Minister’s electioneering claims that interest rates will be reduced.” He said that after the 1975 election, the then National Government had imposed a six-week loan freeze. Interest rates had been bumped up by 2 per cent, while the Housing Corporation’s lending budget had been halved.

“Again,- after the election in 1978, National imposed another loan freeze on all applicants with fewer than three children, which effectively disqualified two-thirds of Housing Corporation applicants overnight, and interest rates again rose dramatically,” said Mr Moore.

“The present Cabinet memorandum shows that further interest rate increases are in the offering if National is re-elected, which is a prediction shared by the National. Party-appointed chairman of the Housing Commission,” he said.

Mr Moore said that a Labour government would put first mortgage repayments on a one-fifth of income basis for home-seekers, and would make provision for “sweat equity" and transferable loans from the Housing Corporation. “Sweat equity” loans would enable young people who showed that they had “technical ability,” but not the deposit, to go into a home in an urban renewal area without a deposit. Mr Quigley confirmed

from his home in Waipara last evening that the memorandum was his. However, he said that it was a draft Cabinet paper and required comment from the Treasury, the Post Office, and the Maori Affairs Department before being put to the Cabinet.

The paper' dealt with quite different issues from those suggested by Mr Moore, he said. It looked at the inequity that now’ existed between home ownership accounts and other lending institutions.

“If you save with the Canterbury Trustee Savings Bank, for example, you are obliged to borrow from the bank on the maturity of your account, even' though you could otherwise have qualified for Housing Corporation finance,” he said.

“That compares with someone who saves with the Post Office who has access to Housing Corporation finance, regardless of income."

The Housing Corporation normally had income cut-off points for its loans, he said. The draft paper suggested that the Housing Corporation should charge a market rate of interest to Post Office home ownership depositors who obtained loans, but were otherwise not eligible for rebated loans. In effect, it meant that people would pay a higher rate of interest for their loan from the Housing Corporation if they were above the usual income limits, said Mr Quigley. It did not mean an “across the board” increase in interest rates.

Also discussed in the paper was the future of the Post Office as a lending institution, and whether it should be fully competitive with other savings banks. At present it lent only on second mortgages, but it could start to lend for first mortgages. Mr Quigley said that the draft paper would not now be put to the cabinet. He wanted to look at a whole range of issues that it did not cover as part of a continuing review of Post Office services.

He had no idea how Mr Moore came to see the paper. It had been sent to other Government departments for comment.