Mortgage market battle pushes rates down again

Press, 18 June 1986, Page 1

Mortgage market battle pushes rates down again

At least four Trusteebanks and the United Building Society announced new reductions in mortgage interest rates yesterday in the increasingly competitive battle for the mortgage market.

The Bank of New Zealand also announced a cut in its lending and deposit rates. Trusteebank Canterbury dropped its first mortgage rate 1.5 per cent, Trusteebank South Canterbury dropped its rates 2 per cent, Trusteebank Waikato lowered its rates between 2 and 3.5 per cent, and Trusteebank Bay of Plenty will lower its mortgage rates 2 to 3 per cent. United’s first mortgage will now be at 19.25 per cent, with second mortgages at 20.75 per cent, effective today. The new rates have been announced in a package of measures “to significantly improve the availability and quality of mortgage finance to the domestic market,” according to the society’s corporate affairs manager, Mr Tony Kunowski. A feature of the package is the introduction of a new "Slow Start” mortgage, under which the level of repayments will be reduced, up to 20 per cent, during the first five years of the mortgage. Mr Kunowski said that would be achieved by starting repayments at an

even lower rate — 15 per cent.

That might mean a nominal balance owing at the end of five years, higher than the original loan. However, it might be lower in real terms, depending on the rate of inflation.

The predicted bottom-ing-out of interest rates in nine or 10 months could boost house prices 10 or 15 per cent. The “Slow Start” mortgage would allow people to buy now before the price rise. Such mongages would still be subject to future reductions in the nominal rate in line with market trends. United’s package includes reductions in existing mortgages, which will fall to 21 per cent on September 1. There would be further reductions for all mortgages on September 30, to a rate yet to be announced. United has also announced changes in lending criteria, with loans available up to 80 per cent of the property’s value, at repayments of up to 35 per cent of gross income. These limits were previously 70 per cent and 30 per cent respectively.

Trusteebank Canterbury’s new rate for first mortgages is 19 per cent, a drop of 1.5 per cent. It follows up a drop of 1 per cent announced on May 21. At that stage, the bank said that existing mortgages would not be reduced until the market had stabilised. - It has now announced that existing mortgages will fall to the 19 per cent rate during August and September. Rates for all other classes of lending would also fall a minimum of 1.5 per cent, and further reductions could be made later if deposit rates continued to decline, said the deputy manager of Trusteebank Canterbury, Mr Richard Bray. The new rate would affect 20,000 mortgages and term loans totalling $354 million, he said. Trusteebank Canterbury would advance up to 90 per cent of the value of a property with no upper limit, he said. Trusteebank South Canterbury’s assistant general manager, Mr D. A. Brien, said the interest rate for new mortgages for qualifying depositors was now 18 per cent, while non-qualifying depositors

would be charged 19 per cent. Existing home mortgages which had been approved at 21.5 per cent and 20 per cent would be reduced to 19 per cent from July 1. The B.N.Z. chief executive, Mr Bob McCay, said the bank planned to drop its base lending rate 1.25 per cent to 17 per cent B.N.Z. Visa card rate is also to be reduced 2 per cent, from 25 per cent to 23 per cent. The rates package also includes: • A reduction of 2 per cent in non-table term loan lending. • A reduction of 2 per cent in new personal loans down to 21.5 per cent for secured and 23 per cent for unsecured loans. • A reduction of 2 percent to 21 per cent in both existing and new lending, for home improvements and tail-jend home finance loans. ■ The base rate and term loan reductions would apply from July 1 and other reductions would come into effect from the time of review conditions applying to existing loan agreements, said Mr McCay.