MORTGAGES AND INTEREST

New Zealand Herald, Volume LXXII, Issue 22197, 26 August 1935, Page 10

MORTGAGES AND INTEREST

The Mortgage Corporation prospectus offering debentures and stock at 3$ per cent at par, for a term of 25 years with an option to repay after 20, is a very interesting document. So, too, is the statement announcing that the Corporation will lend at 4£ per cent, this automatically becoming the rate to which present State mortgagors can have their obligations readjusted on fulfilment of the statutory conditions. The possibility of the second undertaking is, of course, dependent on the success of the first. The board of the Corporation is evidently convinced, after due thought, that it should be able to borrow at the rate nominated. It is putting its faith to the test of the market. Success and embarkation on lending at £4 2s 6d per cent will mean a great deal to borrowers, especially to farmers. Much has been said about the need to reduce costs —though no more than its importance deserves. Borrowing, or refinancing existent obligations at this level will have a very great influence on costs. The burden of interest is an outstanding cost of production, and up to the present has been one of the most; difficult to adjust. So far as the Mortgage Corporation succeeds in the policy it has declared, it will be a development of the utmost importance in the financial history of New Zealand. A point that must not be overlooked is that for business to be possible on the terms outlined the security accepted for loans will have to be entirely sound. With interest cut so fine, with a difference of only § per cent between borrowing and lending rates, there will be no margin for losses, no room for a breath of speculative risk. Consequently the question of valuation will be vital, and settlement of differences when a mortgagor seeks a reduction of his interest to the new rate will be the most delicate and laborious task in the firm establishment of the Corporation on the lines laid down. How it will be attacked and overcome only the future can show. At the moment the level on which it is proposed to do business is of chief interest, and of very deep interest at that.