Election 2014

3 Nov 2008

National welcomes banks' assurances on mortgages

7:56 am on 3 November 2008

National Party leader John Key has welcomed assurances from banks on how they will deal with people facing mortgage repayment problems, and the Government's move to guarantee wholesale bank deposits.

The Government on Saturday announced it will guarantee wholesale bank deposits, following its decision last month to guarantee retail bank deposits amid global financial turmoil.

It says, in return, the largest mortgage lending banks have agreed to look at struggling mortgage holders on a case by case basis.

Mr Key said National welcomes moves to shore up the security of the New Zealand economy and offer families more security in uncertain times.

"The wholesale guarantee was a necessary extension to the banking guarantee programme given the moves taken by others."

Under the scheme, the Government will offer a guarantee to overseas institutions which lend money to banks in New Zealand.

Finance Minister Michael Cullen said institutions that opt into the scheme will pay a fee, and will be able to choose which transactions they want guaranteed.

Dr Cullen said the New Zealand scheme is similar to that in place in Australia, though banks here will pay higher fees, to encourage Australian-owned banks in New Zealand to look to their parent banks for borrowing where possible.

"This scheme is very much about protecting New Zealand's economy, it's not designed as a gift for the banks."

"..It's designed to ensure that they can get their credit lines from offshore renewed as they come up and are therefore able to onlend to New Zealand businesses and New Zealand homeowners."

Dr Cullen said the scheme would guarantee wholesale deposits which have a term of up to five years, however the scheme would only remain in place for as long as it is considered essential in terms of international market conditions.

Banks' assurances over foreclosure

The Finance Minister also said he had exchanged letters with the country's largest mortgage lending banks, about how they will handle customers facing repayment problems during the economic downturn.

Dr Cullen said the banks have placed on paper their approach to trying to ensure that, as far as possible, people are not foreclosed.

"This means that despite the current international circumstances we can anticipate the banks won't become harsher around foreclosure as might otherwise be the case."

Prime Minister Helen Clark said the government expects banks to 'bend over backwards' to help people struggling to pay the mortgage during the recession.

Miss Clark says there is a high expectation on the banks to help those people stay in their homes.

Mr Key has also welcomed the assurances offered by trading banks, in the light of the Government's guarantee to banks.

"We support the move to try and ensure that the banks reciprocate by ensuring that New Zealanders aren't foreclosed on their loans unnecessarily, albeit that we acknowledge that there's no veto from the Government over what's happening with the the banks"

The Government announced on 12 October it was guaranteeing retail deposits of savers in banks and other financial institutions, as the international financial crisis continued.

On 22 October Treasury and the Reserve Bank said the guarantee for deposits would be capped at $1 million per depositor per institution.