Interest rates

Press, 7 April 1984, Page 18

Interest rates

Sir,—Recently the news media reported the reduction in interest rates on mortgages currently held by the Canterbury Savings Bank. Why is the managing director of the United Building Society, Mr C. Jenkins, finding it so difficult to make this adjustment? He was reported as saying “until the average cost of funds reduces still

further the society is clearly not in a position to review all its current mortgages.” This, in the light of the Canterbury Savings Bank’s pronouncement, is a remarkable statement. Why is the policy of two major Canterbury lenders so different?—Yours, etc., F. FINNEGAN March 28, 1984.

[Mr E. Mickell, general manager (operations) of the United Building Society, replies: “After the Prime Minister’s July, 1983, announcement on interest rates, the society said that by November or December, 1983, it would consider reducing interest rates on existing mortgages. Had the mortgage interest rate regulations not been introduced in November, the society would have been in a position to reduce rates between 1 per cent and 2 per cent a year. However, the new regulations required that mortgages be reviewed down to 11 per cent a year and 14 per cent a year for first and second mortgages respectively and we had not at that stage, nor have we yet, reduced our cost of funds to cope with this degree of reduction. As an example, approximately SII7M of the funds invested in existing mortgages is held in accounts for which we have a continuing contractual commitment to pay from 12 per cent a year to 14 per cent a year. Being the only savings and lending institution which has such accounts, we are not in the same position as other institutions to reduce overnight the cost of our funds. Needless to say these accounts, upon maturity, will be reinvested at the then lower market rate. The cost of our funds should accordingly be lowered to a point where an equitable trading margin can be re-established and a review of the rates charged under existing mortgages conducted.”]