C.S. 166
CONFIDENTIAL #
XCC(77)8
30
12 -
The outcome of the discussions between the Working Party and the two banks is a scheme very similar to the partial guarantee scheme described in paragraph 26 above. In essence the two banks are prepared to make available 15-year loans at interest rates which, as a result of the intervention of a partial guarantee, would be below 9% p. a. The two banks have indicated that they are prepared to provide between $250 million and $300 million a year in mortgage loans to flat buyers nominated by the Government.
31
operate:
The following example illustrates how the proposal would
Open market value of flat = $125,000
Cost of flat = sale price
Sale price
less Downpayment
$100,000
less Non-guaranteed part of loan
(60% of value) at, say, 9% p. a.
$75,000
$100,000 10,000 $ 90,000
Guaranteed part of loan
($15,000) at, say, 7% p. a.
15,000
$ 90,000
9% of $75,000
7% of $15,000 =
Total interest payable by
$ 6, 750 1,050 $ 7,800
mortgagor
1.32
Total interest payable as a
$90,000
percentage of $90, 000 = $8.6%.
The two banks have indicated that the guarantee would last throughout the life of the loan. That is to say, the liability of the Government or the institution providing the guarantee would, in the case of the foregoing example, amount to 15/90ths of the outstanding debt at any time.
This point will require further examination given that various permutations, including buy-back arrangements, are possible. Also requiring further and more detailed examination in negotiation are the following points:
(a) whether the interest rates could be reduced;
CONFIDENTIAL
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