HOUSE PURCHASE DEPARTMENT:
ADMINISTRATION & POLICY
(continued)
Special Meeting of the Bank Committee: November 19th 1934 (continued)
The financial effect of this proposal would be as follows:
|
|
£ |
|
Outstanding balances at 30th Sept. 1934 |
1,551,918 |
|
Value of balances in arrear |
278,942 |
|
Leaving to receive the allowance |
1,272,976 |
|
1% on
this latter figure would equal |
12,729 |
It may be expected that a substantial portion of this last-named amount would be met by
increased advances, and the remainder might be met by a reduction in expenditure, compared with last year's figures.
(November 16th
1934)
The General Manager intimated at the outset of the discussion that the suggestions contained in his report were bound up with his report on the rate of interest on deposits, and in view of the decision reached on the latter, he felt that he must withdraw his report. The Committee, while feeling that a reduction to 4% might not be advisable in view of the decision to continue the existing rate of interest on deposits, were also inclined to the opinion that a reduction to 4½%, which had been mentioned as an alternative, would not be likely to attract sufficient new business to meet the loss of income which would result from applying such reduction to existing mortgagors. After further discussion it was:
5271 RESOLVED:- That consideration of the question of the rate of interest on house purchase advances be adjourned and that the General Manager be requested to give further consideration to the matter in the light of decisions reached at this meeting, and report thereon to this Committee.
Bank Committee: December 17th 1934
5295 The following report of the House Purchase Sub-Committee was presented:
Progressive Mortgages.
Your Sub-Committee report that a conference between representatives of the Bank and Finance Committee was held at the Council House on Monday, the 15th October, 1934, on the question of Progressive Mortgages.
The Bank Committee representatives intimated that it was desired to obtain powers enabling the Bank to lend money for the building of houses and a clause had been included for this purpose in the General Powers Bill now being promoted by the Corporation. In the meantime, it was desired to revive the progressive mortgage scheme and the co-operation of the Finance Committee was sought with a view to such scheme being carried out jointly by the two Committees.
The Bank Committee representatives further stated that it was proposed to limit the advances on progressive mortgage to a total of 75% of the valuation and that it was suggested that the Valuation of the Bank's Valuer should be accepted, also that the rate of interest payable should be 5% or the current rate ruling at the time for house purchase advances.
During the discussion, the Bank Committee representatives made it clear that it was not proposed to deal with the speculative builder, but that generally the scheme would apply to builders of small blocks of property or to individual depositors desiring to build their own houses. In any case where an application was received from a builder desiring to develop a large estate, very exhaustive consideration would be given and careful investigation made by the Town Clerk before any recommendation to proceed was made.
The Chairman of the Finance Committee undertook to place the matter before that Committee, who have now passed a resolution intimating that they will be prepared to co-operate with the Bank Committee in the necessary arrangements for advances to be made on progressive mortgage to a total of 75% of the Bank's valuation subject to any necessary consents being obtained.
It is understood that it may be necessary to obtain the consent of the Council to the scheme being revived and your Sub-Committee recommend that the Town Clerk be instructed to report his opinion as to the correct procedure in this matter.
Scheme for combined House Purchase and Endowment Assurance.
The Committee will be aware that in the House Purchase Booklet recently issued particulars were given of a combined House Purchase and Endowment Assurance Scheme. This provides that the borrower would pay to the Bank a level sum each month, representing interest on the loan, together with the assurance premium, but contemplates that no payment of principal would be made until the expiration of the loan when the proceeds of the assurance would be sufficient to discharge the loan.
It has been pointed out that the Mortgage Deed, which has been prepared in accordance with this Scheme, contains a clause to the effect that should the borrower pay off any part of the principal money, such partial payment should not interfere with the amount of the monthly payments subsequently payable.
While your Sub-Committee feels that this particular scheme was not intended to apply to borrowers desiring to make payments of principal before the expiration of the loan, they are nevertheless of opinion that some advantage should accrue to a mortgagor who makes a substantial payment. As the scheme stands, the mortgagor would derive no benefit from such payment as his interest payments would remain unaltered, and it is considered that this anomaly should be removed. With this object, it has been suggested that upon any payment of principal of an amount of £50 or multiples of £50, the monthly interest charge should be correspondingly reduced, but that payments of an amount of less than £50 should not be taken into account for interest purposes.
Your Sub-Committee, therefore, recommend that, subject to the Town Clerk being of opinion that the courses proposed is in accordance with the Regulations, the scheme be amended accordingly, and the Town Clerk instructed to make any necessary alterations in the mortgage deed.
5300 RESOLVED:- That the action taken in connection with reviewing the scheme for progressive mortgages, as indicated in the foregoing report be approved, and that the Town Clerk be instructed to report his opinion as to the correct procedure in this matter.
5301 With reference to the paragraph in the foregoing report on the question of the scheme for combined house-purchase and endowment assurance, the Chairman submitted a letter, dated the 17th instant, which he had received from Councillor R C Yates on the matter. The Committee having considered the views expressed by the Chairman of the House Purchase Sub-Committee and also hearing the opinion of the Town Clerk upon the question, came to the conclusion that it would be inadvisable to make a general alteration of the scheme described in the booklet. It was not anticipated that many persons entering into the scheme in question would desire to make payments before the expiration of the loan, and it was, therefore, considered that any individual cases in which substantial payments of principal are tendered, should be dealt with by the House Purchase Sub-Committee on their merits. Councillor Martineau made a suggestion that in approved cases an allowance might be made as an act of grace, and the Committee agreed that it would be preferable to deal with the matter in this way rather than by altering the mortgage deed in any particular case.
After further discussion it was accordingly:
5302 RESOLVED:- That no alteration be made in the scheme for combined house-purchase and endowment assurance nor in the Mortgage Deed as drawn by the Town Clerk, but that in cases under such scheme where substantial payments of principal are tendered during the period of the loan, it be an instruction to the House Purchase Sub-Committee to consider and decide whether a reduction in the subsequent interest payments should be made as an act of grace.
Bank Committee: January 21st 1935
On Minutes Nos 5271 and 5286 (Rate of interest on House Purchase Advances), the Committee again discussed the desirability of reducing the existing rate of interest on House Purchase Mortgages, and it was:
5313 RESOLVED:- That the matter be referred back to the House Purchase Sub-Committee for consideration and report to the next meeting of this Committee.
On Minute No 5300 (Progressive Mortgage scheme), the Town Clerk submitted the following report:
January 18th 1935
Minute No 5300
Progressive Mortgages.
By the above Minute I was instructed to advise as to the correct procedure necessary for reviving the scheme for advancing moneys upon progressive mortgage pending the passing of the General Powers Bill now being promoted by the Corporation.
The existing powers of the Municipal Bank regulating advances by way of mortgage upon the security of property are contained in Section 12 of the Birmingham Corporation Act, 1919, as extended by Section 57 of the Birmingham Corporation (General Powers) Act, 1929. These powers do not permit the Municipal Bank to advance moneys by way of progressive mortgage.
Advances by the Corporation by way of progressive mortgage are governed by Section 7 of the Birmingham Corporation Act, 1919. Various recommendations were made to the City Council from time to time and ultimately the operation of this scheme became vested in the Public Works and Town Planning Committee in conjunction with the Finance Committee.
In March, 1931, after the scheme had been in operation for some years, as a result of a report presented by the Public Works and Town Planning Committee, the Council rescinded the Minutes giving instructions to the Finance Committee as to the advance of moneys upon progressive mortgage under Section 7 of the 1919 Act, thereby abandoning the progressive mortgage scheme.
Prior to this rescission, in cases where advances under the progressive mortgage scheme had been made to individuals to enable them to build houses for their own occupation, the Mortgage, on the completion of the house was transferred to the Municipal Bank, as this was deemed to be an acquisition of an interest in the dwellinghouse within the meaning of Section 12 of the 1919 Act.
If your Committee desire to revive the progressive mortgage scheme before the General Powers Bill now being promoted by the Corporation becomes law, it will be necessary for the matter to be considered by the Public Works and Town Planning Committee and, if approved by them, for a recommendation to that effect again to be made to the City Council.
There
is a further alternative, dependent upon the position decided by your Committee, which I will refer to at your meeting.
The Town Clerk supplemented his report by pointing out that in the first place the Finance Committee had been the Committee primarily concerned with making advances on Progressive Mortgages, the Public Works and Town Planning Committee having eventually been joined with them in operating the powers of the Corporation under Section 7 of the Birmingham Corporation Act, 1919, with the object of ensuring that the various stages of the scheme were completed and certificates issued before advances were made. He suggested, therefore, that it might be possible for the Finance Committee to report to the Council, recommending that the scheme be revived but that the portion of Section 7 of the Birmingham Corporation Act, 1919, which related to this scheme, be delegated to the Finance Committee in conjunction with the Bank Committee instead of the Public Works and Town Planning Committee.
After discussion, it was accordingly:
5314 RESOLVED:- That the Finance Committee be requested to recommend the City Council to revive the Progressive Mortgage scheme on the understanding that the powers in regard thereto contained in Section 7 of the Birmingham Corporation Act, 1919, be referred to the Finance and Bank Committees jointly, it being the intention that the valuation and inspection work in connection therewith should be undertaken by the Bank's Valuer, and that the scheme would be confined to individual houses or to blocks of property not exceeding 20 houses.
Bank Committee: February 18th 1935
On Minute No 5155, the following report of the Town Clerk was received as to the completion and sealing of the form of Assurance with the Sun Life Assurance Company in connection with house purchase:
18th February 1935
The Sun Life Assurance Company.
I beg to report that I have considered the form of assurance with The Sun Life Assurance Company in connection with house purchase, and having settled the same, have obtained the authority of your Chairman to the affixing of the Seal and its completion with the Company.
I now have to ask that my action in the matter be confirmed.
5342 RESOLVED:- That Minute No 5155 be discharged.
5355 The following report of the House Purchase Sub-Committee was presented:
Interest charged on House Purchase Advances.
As directed by Minute No 5313, your Sub-Committee have given consideration to the above-mentioned question.
After carefully reviewing the facts, they came to the conclusion that the time had arrived when a reduction of the rate from 5% to 4½% should be made, in order to secure increased business. It is proposed that such reduced rate should apply to all new mortgages entered into on and after the 18th February, 1935. It was, however, deemed desirable that the mortgage deed in these cases should if possible contain a provision whereby a mortgagor in default should be charged an additional ½% and, with this object in view, arrangements have been made for your Chairman, the Chairman of this Sub-Committee, and Councillor Martineau, with the General Manager, to interview the Town Clerk.
Your Sub-Committee felt that existing mortgagors, who are now paying 5% interest, should have, as from 1st April next, an equivalent advantage, providing their accounts do not fall into arrear. It is, therefore, suggested that an allowance equal to ½% from the rate of interest charged should be made, at the end of a period commencing from 1st April next, and expiring on a date to be fixed by the Bank Committee, to apply in cases where mortgagors are not in arrear at 31st March and do not subsequently fall into arrear with their payments during the period in question; also that such allowance continue to be made, on the same conditions, at the expiration of each subsequent yearly period until your Committee otherwise decide.
Your Sub-Committee propose that this allowance should be credited to the Savings Bank Accounts of the respective mortgagors. The financial effect of this concession would mean that there would be a reduction of interest receivable by the Bank of approximately £6,000 in a full year.
Consideration had been given to reducing the rate of interest charge on house purchase advances to 4%, but it was felt that such substantial reduction would not be justified at the present time, having regard to the decision of your Committee to continue to allow 3% on deposits.
Your Sub-Committee recommend that the rate of interest charged on house purchase advances be reduced as above indicated, and that the Town Clerk and General Manager be instructed to take the necessary steps to give effect to the proposals.
5360 With reference to the question referred to in the foregoing report as to the interest to be charged on house purchase advances, the Chairman of the Sub-Committee reported that in company with the Chairman (Councillor Cooper), Councillor Martineau and the General Manager he had interviewed the Town Clerk and discussed the possibility of so framing the Mortgage Deed for new advances that a mortgagor in default should be charged an additional ½%. Having regard, however, to the advisability of not detracting from the advertising value of a 4½% rate of interest it was considered inadvisable to introduce such a condition; but it would be desirable for expeditious action to be taken in arrear cases where the advance represents more than 80% of the valuation.
The Committee acquiesced in the views expressed by the Chairman of the House Purchase Sub-Committee and referred the question of taking action in connection with new Mortgages to the House Purchase Sub-Committee to give any necessary directions in the matter.
It was then:
5361 RESOLVED:- That the following alterations be made in the rate of interest charged on advances for house purchase; and that the Town Clerk and the General Manager be instructed to take the necessary steps to give effect thereto:
(1) That the rate of interest charged on all new Mortgage loans entered into on and after the 18th February 1935 be fixed at the rate of 4½% per annum;
(2) That, with regard to existing Mortgages and subject as mentioned hereunder, an allowance of ½% per annum from the rate of interest charged be made at the end of a period commencing on the 1st April 1935, and expiring on the 31st December 1935, to apply in cases where Mortgagors are not in arrear at 31st March next and do not fall into arrear with their payments during the period in question; also that such allowance continue to be made, on the same conditions, at the expiration of each subsequent yearly period until otherwise decided.
(3) That it be understood in giving effect to the last-mentioned instruction that the General Manager shall be empowered to use his discretion to make the allowance in question in cases where Mortgagors through inadvertence become technically in arrear for a few days or in exceptional cases of hardship.
5362 The General Manager then submitted and the Committee agreed a statement to be issued to the press on the subject and the following communication to existing mortgagors, agreed as amended in black ink.
Dear Sir (or Madam),
I am pleased to inform you that the Committee of Management have decided to make an allowance of ½% from the rate of interest charged in respect of all mortgages which comply with the following conditions:
1.
The mortgage account must be clear at the 31st March 1935 (ie, there must be no arrears of principal, interest, ground rent or insurance).
2.
Monthly payments as stipulated by the Mortgage Deed must be regularly made on or before the due date, which date is given on the front
page of the pass book. Days of grace will not be allowed.
3. Providing the above conditions are complied with from the 1st April 1935
to the 31st December 1935, the allowance above referred to will be credited to the Savings Bank account of the mortgagor-depositor.
4.
After the 31st December 1935 the allowance will cover a complete year, ie, from the 31st January to the 31st December, providing the
conditions referred to above have been complied with throughout the whole of the year.
5. These conditions will continue to apply unless circumstances necessitates a reconsideration of the matter.
If you are in any doubt as to the present position of your account, the Officer-in-charge at the Bank office at which your mortgage account is kept will be pleased to explain the matter to you.
Yours
faithfully,
J P Hilton,
General Manager.
5363 RESOLVED:- That the foregoing report of the House Purchase Sub-Committee, as amended, be approve and Minute No 5271 discharged.
Bank Committee: March 18th 1935
On Minute No 5314 (Progressive Mortgage Scheme), the Committee were informed that the Public Works and Town Planning Committee had no objection to offer in regard to the proposals of the Bank and Finance Committees for the revival of the Progressive Mortgage Scheme, which had subsequently received the approval of the City Council.
5374 RESOLVED:- That Minute No 5314 be discharged.