THE MONEY MARKET

Wanganui Chronicle, Volume LXXXI, Issue 18973, 26 March 1924, Page 8

THE MONEY MARKET

NO REASON FOR TIGHTNESS. LOANS AT 6i PER CENT. NEEDS OF THE FARMERS. The position of the money market is a much discussed subject throughout the Dominion. Reports were circulated in Auckland recently that some loans had lately been negotiated at a slight advance upon the standard rates of the last few months. It was generally agreed by the financiers consulted that if it was true that there had been advances at 7 per cent., they could have been made only in cases where very doubtful security was offered, causing the lender to, protect himself against the extra risk by demanding a higher margin in his rate of interest. No person who could show a reasonable proposition need, under present conditions, pay a higher rates than 6J per cent., so ran the unanimous testimony.

The manager of one leading concern deplored the fact that there was disinclination on the part of financial institutions to lend on farm lands. Some of them were not satisfied with loans on mortagage to the farmer, and there investing their funds to a large extent in the debentures of local authorities. The effect of this policy on the country was, he pointed out, very serious, seeing that the primary producer was the backbone of the Dominion, and that it was to tbe interest of New Zealand that he should be encouraged to continue producing. It was, however, a fact that when his mortgage fell duo, he found caution on the part of the advancing institution, which the speaker thought unduly marked, in granting him renewal, and sometimes found it necessary to apply elsewhere. One reason sometimes assigned for the refusal was that the land had been valued too highly. lu such cases, it was suggested, why not have a reasonable valuation placed upon it, and start anew with w r hat was deemed a proper advance? If the policy of restriction upow borrowers to the present extent were continued, it would only have the effect of compelling the Government to extend its lending policy on land, and that would react upon the financial institutions. Upon city properties, said this authority, there was no difficulty in raising money, given a reasonable margin of security, at 64 per cent. Of buyers of farm properties there were plenty ready to go into the market, if only they could obtain reasonable advances, the current rate, as far as the banks were concerned, being 64 per cent. NO LACK FOR CERTAIN SECURITIES. Another financial authority agreed that money for mortgage purposes was somewhat difficult to secure, particularly in large amounts. This, he thought, was largely due to the pronouncements that had been made in certain high quarters suggesting tightness in the money market. Although there might be a passing dearth in the supply of mortgage money, there was abundance of money available for investment in more or less attractive share flotations and for gilt-edged stocks, on which the investor was ready to accept very much lower returns in interest than the current rate on mortgages —for instance, less than 5 per cent, on various solid company shares. It would appear that the difficulty experienced in the rearrangement of finances, particularly in relation to farm lands, was due not to lack of financial means, but rather to the money-owner’s lack of confidence, and to some extent by reason of the taxation to which income derived from mortgages was amenable, whereas income arising from share investment escaped. The high rates offered by various Governments, mostly Australian and foreign, and by public bodies, were also a factor in the denudation of the money market of funds which would otherwise be available for investment at the present attractive rate. There was, in the opinion of this authority, no reason for tightness. The plain fact was that the Government had not given the community the proper lead in the matter, but had spoken w r ith undue pessimism. Measures were needed which would assist the farmers to a greater extent than was available at present. The desire to escape the income tax was an important influence in the diversion of the money-holder to gilt-edged share investments. An easing of the income tax on income derived from farm mortgages would tend to ease the situation more than anything else. IMPORTANT CHANGE OF POLICY Tn another direction it was learned that a large financial institution which has for some years withdrawn from making advances on mortgage is likely, to come into the investment market again in the course of a few months, and this without any waiting for the lifting of the moratorium. It might then be expected that the position would considerably improve as far as the farmer-borrower was concerned.