Interest rise disappointing, says Mr Goff

Press, 3 July 1985, Page 1

Interest rise disappointing, says Mr Goff

By

PATRICIA HERBERT

in Wellington The Minister of Housing, Mr Goff, says he is disappointed at Trusteebank Canterbury’s decision to raise its first mortgage interest rate from 17.5 per cent to 19 per cent. The increase will apply from October 1. “I have to say I am disappointed that the Canterbury Savings Bank (sic) found itself in a position that it was not able to hold off making that increase, particularly as there are clear signs now that interest rates are beginning to fall,” Mr Goff said yesterday. He indicated that the bank would risk serious Government criticism should it try to raise its rates further. “I would certainly not expect the institution, having put its interest rates up again when there are plain

signals that the trend will be in the opposite direction, to go higher than that (19 per cent),” he said. But he seemed confident that from now the pressure will be down rather than up. “I would anticipate that, when growth has come back to a sustainable level, at that rate of interest ultimately the savings bank will find it difficult to lend the money that might be available,” Mr Goff said. His point was that the property market is at present unusually strong — as reflected in the historically high number of building permits being issued — but that this will inevitably taper off and that, when it does, Trusteebank Canterbury may find few takers for mortgages at 19 per cent.

Mr Goff said he had signalled when he welcomed the Budget drop in the deficit that interest rates would come down although there would be a time lag before that was fed through to loans.

The process would begin with the rates paid on Government stock and would move from there to the deposit rates paid by the main institutions and finally to lending. Already, he said, some deposit rates had fallen. But Mr Goff conceded that there was some truth in the statement that mortgage rates were the last to rise and the last to come down. Asked if the Government would be tempted to intervene should interest rates continue to climb, Mr Goff indicated that it would not. He said that artificial intervention to set rates below what the market would pay was counter-productive because it caused distortions in saving and in the availability of funds for housing.

He would not concede that, as mortgage rates rose, there would be a growing group of people who did not qualify for Housing Corporation finance but could not afford to pay 19 per cent in the private sector.

He did say that there was some pressure on the corporation’s “second chance” loans and “an enormous

potential demand.” The general manager of Trusteebank Canterbury, Mr Frank Dickson, had no comment last evening.