Govt had ‘no option’ on interest rates

Press, 10 November 1983, Page 3

Govt had ‘no option’ on interest rates

PA Wellington Regulations imposing maximum first mortgage rates of 11 per cent and subsequent ‘ mortgage rates of 14 per cent were introduced by the Government yesterday. The Prime Minister, Mr Muldoon, announced the decision after a special Cabinet meeting. The regulations had been drafted, would be tidied up, and an Executive Council meeting would finalise them, he said.

The rates would apply immediately to new mortgages and to others as they came up for review, Mr Muldoon said. r He said it had been decided to introduce regulations after he received on Tuesday, the results of a Law Society survey of lending rates. “Although some of the law firms had come down to this 14 per cent level (a

rate Mr Muldoon had indicated as a maximum) it was very untidy.

“A lot were above it and they brought evidence to show that other lending institutions were still above that level, including some such as trustee savings banks, which were a little disappointing.” Mr Muldoon said it was obvious to the Cabinet that rates were not coming down as rapidly as they should. “Clearly a considerable number of lenders were waiting for the Government to regulate,” he said. “We had no option.” All property mortgages, including those for commercial property, were covered by the regulations. The regulations applied to property mortgages, not institutions.

Commercial lending for other than property was not affected. Mr Muldoon said the regulations were expected

to stay in force until the Government was satisfied the interest-rate market was stable at a reasonable level. It might be 12 months “or some such time.”

“I would hope they would not be permanent,” Mr Muldoon said.

Even at the 11 and 14 per cent levels, the rate of inflation of under 4 per cent still meant “we are looking at the highest real interest rates we have seen for a very long time.” Asked why the level was set at 11 per cent, Mr Muldoon said, “Why not?” He said 11 per cent still gave a “positive interest rate of 7 per cent. It is not too long ago, a year and a half, when we had negative interest rates on property mortgages.” Mr Muldoon also said the Government would repeal the interest on deposit regulations, which had no relevance now. The interest rates were way out of line

with present levels. Asked about the position where car finance was raised through mortgaging a property, Mr Muldoon said, “If it is a mortgage on property the regulated rates apply”

Mr Muldoon said that only the property market had been regulated because there was “an infinite variety of lending contracts and if you were to try to devise interest rates for each one it would be an impossible task.”

When maximum rates had been imposed for all types of lending “we have usually done it on institutions — for example stock agents have had a maximum 15 per cent. “You could do it that way. But no, we specifically do not believe it is necessary.

“We think a market will form round the rates that are established.”