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House Purchase

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HOUSE PURCHASE DEPARTMENT:

ADMINISTRATION & POLICY

(continued)

 

Report to the City Council: June 4th 1935

 

HOUSE PURCHASE DEPARTMENT.

 

During the year, 713 mortgages were arranged and 813 paid off, leaving in force 6,432 mortgages representing an indebtedness of £1,535,305 5s. 9d., or an average of £238 14s. 0d. per borrower.

 

The repayment transactions totalled 73,768, and in this connection it is gratifying to report again that the borrowers have satisfactorily maintained their regular payments. In a few instances it has been necessary for your Committee to exert pressure to obtain the amounts due, and the steps taken have been sufficient to prevent the Bank suffering any loss.

 

Borrowers have the choice of making their repayments by two methods, viz: (1) by a fixed monthly instalment of principal, with a reducing monthly interest charge based on the amount of principal repaid, or (2) by a fixed amount representing both principal and interest; and it is interesting to find that, despite the publicity given to the second method by builders and building societies, only 47 persons have elected to make their repayments to the Bank by that means. The majority of borrowers appreciate that the first method referred to above confers advantages which do not accrue to mortgages effected on the equated payment basis. In addition to the above methods of making repayments, your Committee have made arrangements whereby house purchase may be combined with Life or Endowment Assurance, and there is evidence that interest is now being taken in these arrangements.

 

The competition for house purchase business has greatly increased, owing to building societies from all over the country operating in Birmingham and adjoining districts through agencies, or by establishing a local office. Many of these societies have arranged schemes with builders and agents for the sale of houses on low deposit terms. While the Bank, as a public institution, cannot take undue risks, your Committee have, nevertheless, considered it desirable to get into touch with builders and make known the terms and conditions under which schemes can be arranged. As a result, many builders are now co-operating with the Bank.

 

The Committee will continue to give careful consideration to all applications, whether from builders or purchasers.

 

Bank Committee: June 24th 1935

 

5467   The following report of the House Purchase Sub-Committee was presented:

 

Progressive Mortgages for Erection of Houses in Brook Lane, Moseley.

 

An application has been considered from Messrs J Wilkes & Son for advances on progressive mortgage for the building of blocks of houses in Brook Lane, Moseley, it being contemplated that when the houses are completed, they should be sold and mortgages arranged in the usual way. It will be remembered that under the scheme already approved by the City Council, advances up to 75% of the valuation of the properties, according to the percentages agreed upon for different stages of building, may be made through the Finance Committee with the co-operation of the Municipal Bank.

 

Your Sub-Committee recommend that the application be acceded to, and to meet the wishes of the builders, they see no objection to the last instalment being varied, so that instead of 35% being paid on the completion of the houses, 20% should be paid on fittings such as grates, etc being installed and the drainage system completed, and 15% on painting and complete finish of the houses.

 

It is, therefore, recommended that, subject to the approval of the Finance Committee, progressive mortgages be arranged as above indicated and that the Town Clerk be instructed to prepare any necessary documents, affixing the Corporate Seal thereto.

 

5470  RESOLVED:- That, subject to the approval of the Finance Committee, the application of Messrs J Wilkes & Son (Builders) for advances on progressive mortgage for the building of blocks of houses in Brook Lane, Moseley, as indicated in the foregoing report, be acceded to; and that the Town Clerk be instructed to prepare any necessary documents, affixing the Corporate Seal thereto.

 

Bank Committee: July 22nd 1935

 

5486   The following report of the House Purchase Sub-Committee was presented:

 

Progressive Mortgages - Senneleys Farm Estate.

 

An application has been considered from Messrs N Thomas & Son, Builders, for advances on progressive mortgage for the building of approximately 15 leasehold houses on this Estate; the houses, when completed, to be sold and mortgages arranged in the usual way. The types of houses to be erected and the valuations placed thereon by Mr Frank Wilde, the Bank's Valuer, are as follows: 

 

 

The Finance Committee have approved advances being made, and your Sub-Committee now recommend that the application be acceded to, on the basis already laid down by the two Committees; and that the Town Clerk be instructed to prepare any necessary document, affixing the Corporate Seal thereto.

 

5489   RESOLVED:- That the application of Messrs N Thomas & Son, Builders, for advances on Progressive Mortgage for the building of houses on the Senneley's Farm Estate, Weoley Castle, as indicated in the foregoing report of the House Purchase Sub-Committee be approved, the consent of the Finance Committee having already been given thereto, and that the Town Clerk be instructed to prepare any necessary documents, affixing the Corporate Seal thereto.

 

On Minute No 5415, the Town Clerk submitted the following report on the question of making advances upon properties already mortgaged, together with the Case he had prepared for the Opinion of Counsel upon the Chairman's authority, and the Opinion of Mr Wilfred M Hunt of Lincoln's Inn upon the matter:

 

July 18th 1935

 

House Purchase - Transfer of existing Mortgages.

 

Your Committee will recall that at their meeting on the 15th April last, they considered a recommendation by the House Purchase Sub-Committee that the maximum advance to be made to borrowers transferring mortgages to the Bank from other organisations, should be increased to 85% of the valuation, on the understanding that the loan is not to exceed 20 years on the reducing interest payment basis; in other cases the limit of advance to remain at 80% of the valuation.

 

I intimated to the Committee that I would like to give this question further consideration in view of the advice contained in my report to the Bank Committee on the 15th February, 1926, when instructions were given not to grant advances in respect of property already purchased or acquired, where in accordance with my opinion such course would be in contravention of the powers of the Bank.

 

I would remind the Committee that the matter again received consideration in February 1930 at the time when the Regulations were being revised, and an endeavour was made to amend the Regulations to enable the Bank to act in a similar way as certain Building Societies in regard to taking over existing mortgages on properties and like matters.

 

Accordingly, His Majesty's Treasury were approached with a view to the deletion of Regulation No 81, which reads: "the Corporation shall not advance moneys upon the security of property which is subject to a prior mortgage unless the prior mortgage is in favour of the Corporation". In this connection, the following communication, dated the 31st May, 1930, was received from the Chief Registrar of Friendly Societies:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In consequence of this communication, the Bank Committee decided on the 16th June, 1930 to retain Regulation No 81, and I understand that a number of applications since received for advances on property already mortgaged have been granted.

 

In view of the advice already given in my report of the 15th February, 1926, that the position was governed by Section 12 of the Birmingham Corporation Act, 1919 and that Regulation No 81 was not really material, after consultation with your Chairman and the General Manager, I prepared a case for the opinion of Counsel, and I now submit the Opinion of Mr Wilfred M Hunt of Lincoln's Inn, upon the question.

 

This Bank is operated under powers contained in Sections 11 and 12 of the Birmingham Corporation Act, 1919.

 

The matter upon which Counsel's advice is sought arises upon the interpretation of certain words in Section 12 (1) of the Act.

 

The Bank Committee of the Birmingham City Council are empowered to manage the Bank on behalf of the Corporation in accordance with the rules.

 

The House Purchase Department of the Bank constitutes a very important and widely utilised service of the Bank, and at the present time, £1,558,929 is invested in mortgages on house property belonging to depositors of the Bank who are, in the main, persons of moderate means. The number of such mortgagors is approximately 6,410.

 

Recently the Bank Committee have re-modelled their arrangements for assisting depositors to acquire their dwellinghouses, and the new arrangements are attracting considerably increased business.

 

In this connection the Committee are receiving numerous applications from depositors who have obtained through other lending agencies, such as building societies or banks, advances to enable them to purchase their dwellinghouses.

 

These depositors have requested the Bank to advance the necessary moneys to enable them to pay off their existing mortgage and for the mortgages on their properties to be transferred to the Bank.

 

The Bank Committee are very desirous of accommodating these depositors as they have the funds readily available and they are anxious, wherever possible, to meet the wishes and desires of their depositors.

 

The Committee are in some doubt, however, as to their legal powers in the matter, and it is upon this aspect that Counsel's opinion is desired.

 

Counsel will observe that in Section 12 (1) advances may be made by way of mortgage to any depositor desiring to purchase or acquire a dwellinghouse or dwellinghouses within the city or any interest therein. In actual fact the class of depositors under consideration have already acquired their houses through the medium of other lending agencies.

 

The question for determination, therefore, is the meaning to be attached to the words "or any interest therein". A simple example is as follows:

 

A depositor may have acquired the leasehold interest of his dwellinghouse by means of a lending agency other than the Bank and is then desirous of acquiring the freehold interest for which he desires a further advance, and he applies to the Bank accordingly. On the other hand, it is not unreasonable to assume that a depositor should not be debarred from being able to take advantage of the facilities afforded by the Bank merely because he has, at some previous time, entered into perhaps less satisfactory arrangements with some other lending agency for the acquisition of his property and which he now desires to transfer to the Bank itself.

 

Counsel's attention is drawn to No 81 of the Rules of the Bank. It is submitted, however, that this Rule would not be contravened if the mortgages of other lending agencies were transferred to the Bank.

 

The opinion of Counsel is therefore desired upon the following point:

 

1. Does Section 12 (1) contain sufficient authority for the Bank to make advances to depositors for the purpose of paying off existing mortgages on the depositor's property and for the mortgages to be transferred to the Bank?

 

2. Generally.

 

O P I N I O N.

 

1. In my opinion it is clear that under S.12 (1) no advance can be made by the Bank except to a person who at the date when the advance is made is (a) a depositor in the Corporation's Savings Bank, and (b) desirous of purchasing or acquiring one or more dwellinghouses in Birmingham or some interest therein, and I think that condition (b) involves that the Borrower is then about to acquire one or more such dwellinghouses or some interest therein, and is not satisfied by the fact that the Borrower has previously acquired such a dwellinghouse or interest therein.

 

In my opinion condition (b) covers the case of an intending Borrower who has at the date of the request for an advance already entered into a binding contract to purchase a dwellinghouse or some interest therein but such purchase has not then been completed by an assurance. But if the intending borrower has already completed his purchase and owns his house subject to some subsisting mortgage or charge, I am on the whole of opinion that S.12 (1) does not authorise a loan to such house owner for the purpose of discharging such subsisting mortgage or charge whether the transaction is intended to take the form of a transfer of such mortgage or charge which is paid off. Further I am of opinion that this is so even if the pre-existing mortgage or charge is one representing money raised for the purpose of completing the purchase of the house when it was by the intending borrower.

 

2. I am also of opinion that the advance which is authorised by S.12 (1) must not exceed the total amount required by the Borrower at the date of the advance in order to enable him to purchase the house, or interest therein. For example if A owns a long leasehold house  which he has purchased and he desires to purchase the freehold reversion in such house for £100, I am of opinion that the loan under S.12 (1) must not exceed £100; but if the freehold and leasehold interest together are a sufficient security the whole £100 could be advanced on the security. But if there was already a mortgage on the leasehold interest representing the balance advanced at the date of the purchase thereof to enable such purchase to be made, I am of opinion that S.12 (1) would not authorise an increased advance to enable that security to be paid off or transferred.

 

3. Having regard to the provision in section 7 (3) (b) of the Act which is extended by S.12 (1) to cover advances under the latter section, no advances can be made by the Corporation on the security of any property which will continue to be subject to some prior mortgage or charge vested in any one other than the Corporation, and this is repeated in the Birmingham Municipal Bank Regulation No 81; but this provision of course is not infringed if the pre-existing Mortgage or charge is discharged prior to or contemporaneously with the advance under S.12 (1). This aspect of the position however merely relates to the point whether the security for the same advance under S.12 (1) is of a proper nature, and does not mean that an advance is authorised merely because it is for the purpose of discharging, or taking a transfer of a pre-existing mortgage or charge.

 

4. I see nothing to add.

 

WILFRED M HUNT,Linc. Inn.

8/7/35

 

5477   RESOLVED:- That the foregoing report of the Town Clerk be approved; that the action taken in obtaining Counsel's Opinion on the question of the legality of the Bank making advances on property already mortgaged be confirmed; and that the House Purchase Sub-Committee be directed to consider the desirability or otherwise of steps being taken to secure an alteration of the Powers of the Bank to enable such advances to be made.

 

Bank Committee: October 21st 1935

 

5505  The following communication from the Town Clerk as to the directions of the General Purposes Committee concerning money deposited by contractors in lieu of sureties was received and entered on the Minutes:

 

24th July 1935

 

Contracts - Sureties

 

From time to time contractors elect to deposit money on a joint account in the Bank as security for the due performance of a contract, pursuant to Clause 26 of the General Conditions of Contract, in lieu of personal or other guarantees. These deposits have - without authority - been regarded as analogous to retention monies and as attracting a similar rate of interest, eg Municipal Bank rate.

 

The matter has received the consideration of the General Purposes Committee, who have directed that for the future if a contractor desires to deposit money in lieu of sureties, the contract shall include provision that the interest allowed on such deposit shall be the London Deposit Bank rate prevailing from time to time. This direction will automatically preclude the sum being deposited in the Municipal Bank, because of the Regulations relating to the allowance of interest on deposits therein.

 

Bank Committee: October 21st 1935

 

5515  The following report of the House Purchase Sub-Committee was presented:

 

Birmingham Corporation Bill.

Transfer of Existing Mortgages.

 

As a matter of urgency your Sub-Committee, with the concurrence of the Finance & General Purposes Sub-Committee, authorised that the necessary steps should be taken for including a clause in the Birmingham Corporation Bill to enable the Corporation to make advances to any depositor in the Bank for the purpose of discharging a subsisting mortgage or charge on a dwellinghouse or dwellinghouses in the City or within any county or county borough adjoining the City.

 

Your Chairman moved a resolution to this effect upon the Bill being considered by the City Council in Committee, when authority was given for a clause to be included accordingly.

 

5521  RESOLVED:- That the action taken for the purpose of including a clause in the projected Birmingham Corporation Bill to enable the Corporation to make advances to any depositor in the Bank for the purpose of discharging a subsisting mortgage or charge on a dwellinghouse or dwellinghouses in the city or within any county or county borough adjoining the city, be confirmed; also that Minutes Nos 5415 and 5477 be discharged.

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