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House Purchase

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HOUSE PURCHASE DEPARTMENT:

ADMINISTRATION & POLICY

(continued)

 

4. For dealing with the loans which are repaid by fixed instalments of principal with a reducing monthly interest charge, the Sun Life Assurance Society has also been selected. A single premium in this case based on a loan of £100 would be as follows:

 

5. The surrender values attached to policies taken out under schemes referred to in paragraphs 3 and 4 are higher in the case of the Sun Life Assurance Society than any other office, and in addition special terms would be arranged in the event of surrender owing to the default of the borrower.

 

6. For dealing with endowment assurance the Phoenix Assurance Co Ltd, has been selected. In this case the borrower would make a monthly payment of interest and a monthly premium payment, but no payment of principal would be made until the expiration of the loan, when the Bank would receive the whole amount outstanding. The monthly premiums based on a loan of £100 would be as follows:

 

 

A simple bonus of £2. 6. 0. per cent would be added to all with-profit policies.

 

7. For dealing with guarantees to cover advances in excess of 75% of the Bank's valuation, the Royal Insurance Co Ltd, has been selected. Their rates for single premium payment represent 10% of the amount of the indemnity for advances of 20 years' duration, and 12% for advances of 25 years' duration.

 

8. In bringing these schemes into operation, the policy of dealing with each application on its merits will be maintained, and in approved cases advances up to 90% of the valuation, plus the addition of the premiums, will be made in cases referred to in paragraphs 3 and 4 above, provided that the total amount advanced does not exceed the valuation.

 

9. Your Sub-Committee agree with the recommendations of the Special Sub-Committee, and submit the same for the approval of the Bank Committee.

 

10. It is considered essential that the staff at Head Office and Branches should become thoroughly acquainted with these schemes, and that in this connection the services of Messrs Sedgwick, Collins & Co Ltd, would be most helpful. Your Sub-Committee therefore, recommend that instead of paying the firm in question a fee for their investigations and report and then dispensing with their services, they should be retained to help in the working of the various schemes on the following terms:

 

The special commission offered to Messrs Sedgwick, Collins & Co Ltd, as Brokers should be paid to them by the Companies concerned, and that two-thirds of such commission should be passed on to the Bank.

 

11. Steps for giving publicity to these extended facilities are proceeding, and it is recommended that the issue of such booklets as may be considered advisable be left in the hands of the Town Clerk and General Manager; also that they be authorised to take any necessary action to give effect to the proposals.

 

Extension of House Purchase Facilities - Corporation Houses.

 

The Finance Committee have considered the question of enabling the extended facilities for house purchase to be available for purchasers of municipal houses, and a Minute of that Committee has been received directing that the Bank Committee be advised that the Finance Committee  will raise no objection to the purchase of municipal houses on the same terms as are offered to purchasers of houses erected by private enterprise.

 

5154   Before the Committee considered the proposals relating to Assurance in conjunction with House Purchase, Alderman Sir Percival Bower intimated that he was interested in one of the Companies concerned.

 

It was:

5155   RESOLVED:- That the proposals contained in the foregoing report of the House Purchase Sub-Committee in regard to schemes for combining life and endowment assurance with house purchase be approved; that the arrangement therein recommended with Messrs Sedgwick Collins & Co Ltd, Insurance Brokers, be adopted; and that the Town Clerk and General Manager be authorised and instructed to prepare and issue such booklets explaining the scheme they may consider desirable; also to take any other necessary action to give effect to the proposals so far as the Bank is concerned; further that Minute No 5125 be discharged.

 

Bank Committee: July 23rd 1934

 

5210   The General Manager outlined the various arrangements which had been made from time to time relating to the Valuer of the House Purchase Department and the fees paid to him for the valuation of houses, which were briefly as follows:

 

On the establishment of the House Purchase Department of the Bank, Mr S J Lancaster (Superintendent Valuer) was appointed Valuer and by arrangement with the Birmingham Overseers, 10/6d. was paid for each ordinary valuation. Difficulties, however, occurred in valuing houses for mortgage purposes and also for rating purposes and the Overseers decided that Mr Lancaster's appointment with the Bank should cease.

 

Mr Frank Wilde was appointed Valuer on the 15th May, 1920, at a fee of £150 per annum covering 300 valuations, any additional valuations to be paid for at the rate of 10s. 6d. each, which was in December, 1921, reduced to 10/-. Urgent cases or special valuations were paid for at special rates.

 

Upon the Corporation deciding to sell Municipal Houses, Mr Wilde was supplied with plans of estates and other information regarding the houses and it was arranged that he should furnish a modified valuation at a reduced fee of 5s. for each case. This arrangement continued for ordinary cases, namely 10/-, in view of the fact that the applications were in respect of houses in so many scattered areas.

 

Three years ago, Mr Wilde was required to make valuations on Tuesdays and Fridays of each week so as to speed up the work of completion.

 

It was agreed that the time had arrived to review the fee paid to Mr Frank Wilde for the following reasons:

 

(1) the extension of the City by the inclusion of Sheldon, Perry Barr, and other areas;

 

(2) the House Purchase advances now being made in Oldbury and Solihull, involving long distances to travel;

 

(3) the fact that the income which Mr Wilde derived from the purchase of bank properties and the valuation of new buildings and reconstructed premises had practically come to an end.

 

After consideration, it was accordingly:

 

5211   RESOLVED:- That the present arrangements with Mr Wilde be terminated; and that the fees to be paid to Mr F Wilde for the future valuation of Houses for the purpose of house purchase advances be fixed at the rate of £1 per dwellinghouse in ordinary cases, but that in respect of valuations for advances upon blocks of property on Housing Estates under special arrangements the fee be fixed at 10s. per valuation, the House Purchase Sub-Committee to decide as to the cases in which this latter arrangement is to operate; it being further understood that the fee to be paid by the applicant in respect of the valuation of the property shall be as at present, namely 10s. in each case.

 

5212   The General Manager reported as to an application received from Mr Simcox, Builder, for advances to be made by the Bank on blocks of new houses erected by him to be sold subject to a fixed deposit. The amount of the advance required on each of such houses would be £450 and Mr Frank Wilde's valuation was £480. Under the conditions laid down by the Bank Committee, and included in the House Purchase pamphlet, it would be necessary for the builder in such a case to deposit collateral security to cover the difference between 80% of the valuation and the actual amount of the advance. With regard to the present application, therefore, this would mean that the Builder would be required to deposit security to the value of £66 per house, namely, the difference between 80% of Mr Wilde's valuation (£384) and the amount of the advance required (namely £450).

 

The Builder had taken exception to this requirement, pointing out that the Bank had expressed their willingness in certain cases to make advances without collateral security up to 90% of the Bank's valuation and it might be argued, therefore, that the Builder was required to deposit collateral security for £66 to secure an additional advance of £18.

 

The Committee discussed the matter at some length, it being eventually decided to refer the question to a Special Sub-Committee consisting of the Chairman, the Chairman of the three Sub-Committees, and Councillor Yates, with the Town Clerk and the General Manager, with authority to decide the matter in such manner as they consider expedient.

 

House Purchase Sub-Committee: July 23rd 1934

 

Rate of Interest on Advances for House Purchase.

 

Your Sub-Committee have considered a communication from the Secretary of the Birmingham Municipal Officers Guild pointing out that they have received an offer to advertise in the Guildsman loans for house purchase at 4½% interest, and asking for the observations of the Bank Committee thereon.

 

Your Sub-Committee are of opinion that any proposal to reduce the rate of interest on house purchase advances would require to be considered in conjunction with the general financial position of the Bank. Having regard to the fact, however, that the larger building societies have not reduced the present rate of 5% interest, your Sub-Committee do not consider it desirable for the Bank to take any such action at the present time, and have instructed the General Manager to send a suitable communication to the Birmingham Municipal Officers Guild accordingly.

 

Bank Committee: October 15th 1934

 

On Minute No 5212 (house purchase advances - collateral security by builders etc) the following report of the Special Sub-Committee appointed to consider this matter, which report had been circulated to members of the Committee, was presented:

 

Report of the Special Sub-Committee appointed to consider the question raised on Minute No 5212 of the Bank Committee - 23rd July 1934.

 

At the conclusion of the Meeting of the General Committee, the Sub-Committee met to consider the point raised by Minute No 5212 in regard to the collateral security to be provided by builders in the case of the sale of new houses, where advance exceeding 80% of valuation are required by purchasers.

 

The Sub-Committee came to the conclusion that as a general rule the policy outlined in the recently published House Purchase booklet should be adhered to but felt that some modification of the printed requirements might be admitted where the following conditions operated:

 

1. The reputation of  builder and the standard of his work were favourably reported upon by the Bank's Valuer and

 

2. The deposit paid by the purchaser was not less than 10% of the purchase price and

 

3. The Bank was satisfied as to the financial status of the purchaser.

 

In such cases the Sub-Committee decided that advances up to 90% of the purchase price might be made on condition that the builder deposited with the Bank or gave other adequate security for a sum equivalent to the difference between 90% of the purchase price and 90% of valuation, such deposit or security to be retained by the Bank until the advance had been reduced to 80% of valuation. The Sub-Committee directed that in the absence of special circumstances all advances made under these conditions should be for a term not exceeding 20 years and under Method No 1 ie a fixed monthly repayment of principal and reducing interest charge, any exceptional cases involving a longer term or a different Method to be decided on their merits.

 

The Sub-Committee realised the importance of formulating a scheme which a builder could put before intending purchasers with the reasonable certainty that their application would be granted and the General Manager was accordingly authorised to make known to approved builders the terms which the Bank was prepared to offer, subject nevertheless to it being understood that every application for an advance exceeding 90% of valuation must be regarded as a "special case" within the meaning of Regulation No 77.

 

5224   RESOLVED:- That the foregoing report be approved, the decisions arrived at by the Special Sub-Committee confirmed, and Minute No 5212 discharged.

 

5244  The General Manager reported that in respect of the Mortgage on No 59, Clements Road, the mortgagor had sent a cheque drawn in the name of a trading account, Messrs W Jackson & Co. As it was not the practice of the Bank to accept business cheques for payment into accounts of mortgagors unless satisfied as to the propriety of doing so, he proposed to enquire further into the matter, a course to which the Committee assented.

 

House Purchase Sub-Committee: October 15th 1934

 

Progressive Mortgages.

 

Arrangements have been made for a Conference to be held between representatives of the Bank and Finance Committees upon the question of reviving the making of advances by way of progressive mortgages for the erection of houses. The representatives of your Committee at this Conference, which it is proposed to hold at 12:15 on Monday next, the 15th instant, (after the meeting of your Committee) are your Chairman, (Alderman Gelling) Alderman Barrow and Councillor Cooper, with the General Manager.

 

Bank Committee: November 12th 1934

 

The General Manager reported that two depositors had applied direct to the Town Clerk of Sutton Coldfield for consent to mortgages being entered into with the Bank in respect of houses situate in the area of Sutton Coldfield, and had received written consents from the Town Clerk of that Borough. The depositors had based their applications on Regulation No 7 (b) which states that one of the objects of the Bank is to advance money to depositors desiring to purchase a house in an area adjoining the city of Birmingham with the consent of the Local Authority concerned.

 

The question was considered as to the advisability of deciding these applications until the proposal to establish a Branch Bank in Sutton Coldfield had been settled, and Councillor Yates also raised the point as to whether these applications could legally be granted under the powers of the Bank.

 

5260   RESOLVED:- That Councillor Yates and the General Manager be requested to interview the Town Clerk upon the matter, but that, subject to there being no legal objection thereto, such applications be dealt with in the usual way, providing the consent of the local authority concerned is obtained.

 

Special Meeting of the Bank Committee: November 19th 1934

 

5270   The Committee considered the following report of the General Manager on the question of the rate of interest on house purchase advances:

 

Arising out of the probable reduction of interest allowed to depositors, I would invite the Committee to consider the rate of interest charged to mortgagors.

 

When the Bank was established in 1919 it was considered that a margin of 1½% between the rate of interest allowed to depositors and the rate charged to borrowers was reasonable, and accordingly 3½% and 5% rates were fixed. For a short period of dear money the rate on mortgages was increased from 5% to 6¼%, but as soon as circumstances permitted such higher rate was reduced to 5% and that rate has remained undisturbed.

 

At the time the deposit rate was reduced from 3½% to 3%, no alteration was made in the rate charged to mortgagors, it being felt that even with a 5% charge the Bank terms were more favourable than those offered by building societies.

 

The practice followed by building societies during the last few years have, however, seriously affected our house purchase business, as the following figures indicate:

 

Year ended 31st March	Mortgages arranged	Mortgages paid off
1928	1,102	517
1929	769	638
1930	990	648
1931	971	615
1932	851	683
1933	703	779
1934	537	891

 

Realising the situation the Committee have endeavoured to stimulate business by offering more favourable terms with optional schemes, and whilst these efforts have not been without success, they have not produced that volume of business which was anticipated. The reason is partly to be attributed to the fact that certain building societies have shown a tendency to go one better by offering terms and conditions we could not prudently follow.

 

From the point of view of income from house purchase advances we are now back to the position we were in in 1927, viz:

 

At March 31st	Amount Outstanding
1934	£1,575,838
1927	£1,567,358

In March 1920 the Committee considered that up to one-third of the Bank funds might be used for house purchase advances. In January 1928 this proportion was reduced to one-quarter. On the March 1934 figures this would mean over £4,000,000, whereas we have only £1,575,000 so invested.

 

The necessity for increasing our income is vital, and as house purchase advances represent the most lucrative form of income available to us, I submit that we should make a bold move and reduce the rate to 4%, which should have the effect of applications coming to us in increasing numbers. The reduction might be brought about in two ways, viz:

 

(1) by an openly advertised rate of 4%, or (2) be maintaining the charge of 5% and making an allowance of 1% at the end of twelve months in all cases where the mortgagor has not been in arrear with his payments during the twelve months. Such allowance could either be made on a mortgage account or credited to the Savings Bank account of the mortgagor, whichever method is favoured by the Committee. The psychological effect of the former would be greater than the latter, but the higher rate would compensate to some extent for the trouble and expense in dealing with defaulters.

 

So far as existing mortgagors are concerned, while there is no liability upon the Bank to reduce the present rate, I think it would be good policy to allow existing mortgagors the benefit of the suggested new terms, providing their accounts have not been in arrear during the period of twelve months. In these cases the present rate of charge should be maintained, and the allowance made at the end of the twelve months.

 

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