LOWER INTEREST

Evening Star, Issue 21945, 4 February 1935, Page 7

LOWER INTEREST

A DUBIOUS OUTLOOK After some analysis of table mortgages the statement proceeds : The chief fault of the existing mortgage practice lies not in the system itself, but in the fact that by far the majority of borrowers never dreamt in prosperous times of reducing their mortgage indebtedness, but were content simply to spend (and in some cases squander) handsome earnings and trust to the refinancing of the whole of their

On page 7 of his pamphlet Mr Coates summarises his expectations from the establishment of the corporation in the following words: —‘ ‘lt is hoped that the operations of the corporation will result in stabilising mortgage rates of interest at lower levels,” and a section of the farming community is anticipating a substantial reduction in the interest rate on farm mortgages. The committee is unable to see how this can be effected. The pamphlet anticipates that Mortgage Corporation bonds will carry interest at approximately the same rate as better-class local body securities — say, to-day. Si per cent. If the Mortgage Corporation can issue bonds on a 3i per cent, basis the committee is satisfied that it will require to charge its farmer mortgagors, 4$ per cent, interest or more. This allows 1 per cent, to cover administrative costs and contingencies, and large-scale lenders have round this scarcely‘adequate. In addition the mortgagors will have to pay the annual reduction on account of principal and the proportionate amount of the contributions to the reserve fund. Even if the bonds could be sold to the public on a 3 per cent, basis, which is lower than the average market yield of Government stocks to-day, it is very doubtful if the corporation could reiend to its borrowers at substantially less than 4fc per cent. The committee would point out that on this basis the amount to be paid half-yearly by the borrower would be slightly higher than ti n half-yeariv payment under the oiiginal State advances tables.

At the present tunc there is, the coram'itee is satisfied, a large amount <r money available for investment on mortgage at per cent, per annum and h wer.

The committee is of opinion that the bonds will not find a ready sale at a low rate of interest. Unless the bonds can be sold at a low interest rate the corporation cannot lend at a low rate and prosper. UNWIELDY SIZE OF CORPORATION,

The committee is very much afraid that tho corporation will inevitably be unwieldy in size and impossible of sound and economic management. We already have the example of one institution whose very size has made it unwieldy and difficult of management. It is very doubtful whether there is available the personnel with either the necessary vision or the necessary practical experience to handle the huge sums that will in due course be at the disposal of this giant corporation. The committee understands that approximately £50,000,000 face value of mortgages will be taken over. Executive officers capable of handling such a huge business are not easily found. The committee would point out that the corporation will, from its inception, bo one of the largest lending institutions in the dominion.