Mortgage rates ‘may not have peaked’

Press, 26 October 1984, Page 6

Mortgage rates ‘may not have peaked’

By

MICHAEL HANNAH

in Wellington

Home mortgage interest rates may not have peaked yet, according to the Minister of Housing, Mr Goff, although he promises a “substantial” cut in this year’s Budget deficit as a step to reducing rates in 12 to 18 months.

In an interview, Mr Goff told “The Press” that the Leader of the Opposition, Sir Robert Muldoon, might have to "swallow his words” when he sees the size of the reduction in the Budget deficit on November 8. Sir Robert has asserted that the Government can only reduce the deficit by “fiddling” this year, and that financial lending institutions will see a deficit drop as artificial. Mr Goff said that the deficit had to come down if interest rates were to drop, and he rejected Sir Robert's scepticism. “The present Leader of the Opposition will have to

wait for the Budget and then he may have cause to swallow his words,” Mr Goff said. “It is the intention of this Government to reduce substantially the deficit in this Budget and that will lead to pressure on the upward movement of interest rates to reverse next year.” Mr Goff said there would be a lag before interest rates came down. “I cannot see interest rates coming down in the short term, I have to say that. I am not even sure that it has peaked yet,” he said. “I think that in 12 to 18 months time, however, given consistent policies on the part of Government, you will begin to see that turn round.” Mr Goff said he appreciated that the present high interest rates excluded some people from financing house mortgages. But the message he had received from people, who missed

getting finance under the previous Government, was that they would rather have loans at 14 or 15 per cent than no loan at 11 per cent. He maintained that interest rates regulations imposed by Sir Robert’s Government would have dried up the source of funds for housing. He cited the Countrywide Building Society, A.G.C. Finance, Broadbank, and solicitors’ trust funds as areas where this had already happened under the previous Government.

Interest rate regulations had had to be removed, he argued, so that money would return to New Zealand, rather than be invested in Australia, where it got a better return. The higher return available in Australia had meant there was no money for housing or growth industries in New Zealand, Mr Goff said.

He believed people had accepted the need for the Government to take “tough” action to reduce the deficit

and inflationary expectations, but he conceded that people were not happy about mortgage rate increases.

“I accept that people who were led to believe, quite falsely by the previous Administration, that they could get mortgage finance at 11 per cent are less than happy about the fact that they are now paying on first mortgage 14 or 15 per cent for it,” he said.

Mr Goff predicted that the Budget would help those people who were suffering from a “housing crisis” — first, by increasing their disposable incomes; second, by reducing the deficit and pressure on interest rates; and third, by increasing the Housing Corporation’s role.

“I would want to see the Housing Corporation restored to a greater role in house lending and in provision of rental accommodation for that matter,” Mr Goff said.