Banks taken to task over mortgage rates

Press, 27 January 1988, Page 1

Banks taken to task over mortgage rates

PA Hamilton Banks are deliberately holding mortgage interest rates high to recoup profits lost in the sharemarket crash, says the Consumers’ Institute assistant director, Mr David Russell. "Last week’s mortgage interest rate cuts of 0.5 and 1 per cent are laughable when most banks are still charging 19 to 20 per cent and inflation is under 10 per cent,” he told the “Waikato Times” yesterday. Consumers should not have to wait months for mortgage rates to come down to 15 per cent nor pick up the bill for banks’ bad corporate loans. “Most mortgages now have review clauses so they were able to hike rates up when inflation gripped. Now that inflation is coming down

they should act with • the same promptness,” Mr Russell said. Banks and other lending institutions should act immediately to bring mortgage money down to about 15 per cent. However, banks deny they are deliberately holding up interest rates, arguing that they can’t cut rates until the cost of money 'they borrow comes down and their deposit contracts mature. Banks also blame the Government for paying a high interest rate for Government stock, and high wage increases. While the banking industry may have taken a hammering with corporate loans that have gone sour and foreign exchange losses, “the poor old domestic consumer” should not be used to prop up inadequately

researched lending decisions, Mr Russell said. Unfortunately there was little consumers could do to force banks to cut interest rates, apart from putting public pressure on bank managers, he said. Changing to a cheaper bank was not the answer as it would cost between $6OO and $lOOO in legal and banking fees just to swap a mortgage over, Mr Russell said. ’’And there is certainly no real evidence of strong competition in domestic banking in New Zealand — banks must realise that competition is more than just giving customers ballpoint pens and free wallets.” Independent economists are also critical of the banks’ slowness in bringing mortgage interest rates down. Waikato* University’s Peter

Lane said there was no doubt that banks were trying to make “a little bit extra” to recover some bad losses made recently — “but that’s normal business practice.” Kel Sanderson, an economist with the BERL forecasting group, estimated that banks lent $2.8 billion to ’’speculative activity” between September, 1985, and March, 1987, and a further $2.4 billion during the share and property boom in the middle of last year. With so much money at risk banks would be keeping their profit margins as wide as they could, he said. The executive director of the Bankers’ Association, Mr John Belgrave, said it was not inflation that determined interest rates but the cost of funds to the bank.