1986 — rough ride for mortgage-holders A bad news, good news year

Press, 24 December 1986, Page 13

1986 — rough ride for mortgage-holders A bad news, good news year

In Residence

by

Sarah Sands

This year has been a roller-coaster year for mortgage-holders, who have seen their mortgage interest rates change almost monthly. At the beginning of the year, interest rates appear to be on an upward spiral with no return in sight. Trust Bank Canterbury announces a 2.5 per cent increase in its first mortgage rate (taking it to 21.5 per cent) saying it has to do so in order to pay higher deposit rates. The United Building Society increases its rates for first mortgages to 22.5 per cent for members and 23.5 per cent for nonmembers only three weeks after it opens lending to non-members. Second mortgage interest rates are 25 and 26 per cent respectively. Both institutions report strong demand for mortgage money even with Such high rates. ? Trust

Bank Canterbury says it can’t hope to fill the demand and United trebles its mortgage lending to $7 million a week nationally. United’s corporate affairs manager, Mr Tony Kunowski, says interest rates are likely to stay high for 18 months because of the economic conditions.

The Trust Bank general manager, Frank Dickson, explains the interest rate problem in simple terms.

“Those with money are looking for as much as they can get for it while those who want to borrow want to pay as little as they can for it. The bank is the unfortunate intermediary.” In June, the trading banks make a big push into the mortgage lending market, causing a drop in interest rates and a flood of money onto the market.

Interest rates are

as 17.75 per cent for clients and 18.75 for nonclients. The top rate is 19.5 per cent to $30,000 and 20.5 per cent on total loan above $30,000. Second mortgage rates drop to between 20.75 and 22 per cent.

United drops its rates to 19.25 per cent for first mortgage and 20.75 per cent for second mortgage,

the level at which the rates stay for the remainder of the year. Many financial institutions speculate that the interest rates will come down further but most will not predict when. Trust Bank’s deputy general manager, Richard Bray, says he believes it will not be until 1987.

By July, first mortgage rats? have dropped to a

new low of 17.5 per cent for clients and 18.5 per cent for non-clients and institutions are almost giving money away. Terms become very flexible. In the period between the second week of June and July 23, the ANZ lends $lOO million to more than 2600 people nationally (in the previous month it was only lending $l7 million); Westpac lends $BO million to more than 2000 people nationally; United lends $l2 million; and Trust Bank lends $17.5 million locally. Post Office funds are in short supply and the lending level is between $2.5 and $3.5 million locally a month. Many people with Post Office accounts have their loan applications turned down and approach other institutions. In October, the Government’s Homestart lending scheme begins after the home ownership givings

scheme incentives are scrapped.

This month interest rates increase slightly (see table) with Westpac rates .5 per cent higher than they were in June. Most other rates are either the same or slightly lower than they were mid-way through the year. The Housing Corporation reports that the Homestart scheme is going well with more than 450 Homestart loans in Christchurch approved since October 1.

Demand for money from the Post Office has dropped dramatically to the level where adequate funds are available for the number of applications.

A roller-coaster year it certainly has been and with all the predictions that next year will be the year that interest rates drop, 1987 may well be the same.