BMB

Lucky was the depositor who could obtain a BMB mortgage, for not only were the interest terms
generous compared with those of most building societies, but there were two options for making
repayments. One was the Equated Mortgage, by which the mortgagor would be required to repay a fixed
monthly sum comprising at first mainly interest, with the interest/capital ratio gradually shifting throughout
the mortgage term until in the latter years the same fixed payment consisted almost entirely of capital. The
second option was the Reducing Mortgage by which the mortgagor would discharge the indebtedness by
equal monthly payments to which were added interest based upon the amount borrowed, this interest
being calculated monthly upon the ever-reducing, outstanding balance. As the outstanding balance
reduced, so accordingly did the interest. Of the two choices, the Equated method was the most
expensive over a whole term, but suited mainly the borrower who could initially afford only limited
repayments - at the cost, of course, of never seeing the monthly repayments reduce.

With all these benefits on offer, and private house-building booming following six years of war, demand
for BMB mortgages during the 1950/60s - the period of the typical application - was high, as described
by another member of the staff working in the Department at this time (see House Purchase
Department by Eric Bignell). There were also, however, numerous pitfalls which the prospective
mortgagor could encounter. In following his or her progress from the time of arriving at the House
Purchase Department's rather imposing lobby within the even more imposing Broad Street Head Office,
we can learn a little of how an application was handled.

As with the depositors at branches, applicants for mortgages were of all ages and occupations. Apart
from making random enquiries, the common factor was that they were anxious to borrow the Bank's
money against the security of a home that they either already owned or, more usually, against a property
they wished to purchase. Their first, undramatic step was to press the doorbell. This was mounted at the
outer door of the office of the House Purchase Department and pressing it would immediately summon a
member of staff to ascertain the reason for the visit and if the visit was to enquire about the possibilities
of being granted a mortgage, the applicant(s) would be ushered into one of the three interview rooms
round the perimeter of the lobby. The rooms had an air of solid security; their furnishings were typical of
the whole building and both interviewer and interviewee would be discussing their business in an
atmosphere more akin to a board-meeting than an inquisition. The interviewer (at that time almost
invariably male, often on the verge of appointment to a junior management role) knew full well that the
matter to be discussed might be of life-changing importance and that it was more than likely that the
applicant would be totally ignorant of at least some of the commitment they were contemplating.

The discussion naturally followed a formula, but this could change as information was gradually
extracted. Was the applicant a depositor? This was essential. Importantly, there would be questions as to
the applicant's BMB savings record; was it purely nominal, with principal savings being with a building
society, perhaps, in which case the applicant's prospects of success were already poor; or substantially
with the Bank? Where was the property, as there were restrictions upon where the Bank could grant
mortgages? If (unusually) they already owned the property, possession must be 'unencumbered' or
already subject to an existing Bank mortgage, as the Bank was never prepared to become a legal 'second
mortgagee', though to an existing Bank mortgagor it may be prepared to grant a sum by way of 'Further
Charge' for alterations, extensions, etc. At any one of these points, the application could fail, but
hopefully for all parties the interview could continue. What was the price of the property that they had in
mind and what proportion of this price would they be expecting to borrow: the maximum amount was
80% of the Bank's valuation of the property. Was any of the purchase price being supplied by parents,
etc., or would the latter be prepared to act as guarantors if necessary? Was it a new or existing property?
If new, would the builder be requiring 'stage payments', in which case the mortgage would be limited to
75%? What employment did they have and what was their income? Twice annual income was the
preferred maximum granted by way of mortgage, though 2½ times was permitted if the employment was
especially sound. All this questioning took place with a minimum of formality and in a friendly fashion,
the conversation often leading to quite personal issues: a pig farmer whose savings fluctuated wildly when
he was in the process of replenishing his 'stock' and was genuinely indignant to discover that he might
have been expected to maintain a permanently larger balance; an applicant who had no need for a large
mortgage but was unwilling to use 'blood money' compensation from a family accident. To the observer,
these might seem obstacles easily overcome, but in fact they demanded a large amount of empathy, even
sympathy, yet could not be allowed to influence unduly what was largely a commercial decision.

Having gathered all these relevant facts and decided that the application had merit, the interviewer could
not make any decision nor give any official opinions as to the potential success of the application. The
next task for the interviewer was to prepare a report for consideration by the Superintendent of the House
Purchase Department, who in this particular era was a certain Mr S A Guy, a quiet, thoughtful man whose
rise to this important post was the result of an impeccable career (he later became a much-admired
General Manager). His judgement would take into account not only the merits of the application, but also
the unfortunate truth - which would have been explained to the applicant during the interview - that the
total sums available for mortgages were a proportion of total Bank deposits and were thus effectively
'rationed'. Some applications were therefore bound to fail in such a competitive market. With some
uncommon exceptions, where an application was so meritorious that it could not possibly be allowed to
fail, in which case the applicant would complete a formal application immediately, the 'normal'
prospective borrower would be requested to telephone later for a verdict. A border-line or controversial
case might even be put before the Bank Committee for a decision.

Once a favourable decision had been given, the business of the formal application could begin. This was
the start of firm commitment from both sides. The Bank was agreeing to make an advance by way of
mortgage, provided that the valuation of the property was adequate to meet the requirements of both the
Bank and the depositor, and that the legal title to the property was proved to be in order. The first of
these functions would be carried out by a valuer designated by the Bank; the second by members of the
Birmingham Town Clerk's Department, who were the Bank's solicitors. From the mortgage applicant,
completion of the deceptively simple Form MB44 was the only requirement for the time being, but it
contained vital undertakings, namely that the applicant would pay any costs incurred in connection with
the application, whether proceeded with or not. It also acknowledged facts regarding the legal status of
the property, probably already noted in the initial interview, but now being declared legally, e.g. whether it
was leasehold or freehold; the builder's name (if a new house); the chosen term of repayment of the loan
and the solicitors who would be acting on behalf of the purchaser. This latter question was often a cause
of concern to the applicant, for many (especially younger) depositors of the Bank had never in their
whole lives crossed the threshold of a firm of solicitors. Professional ethics prevented Bank staff from
recommending a specific firm, though they were able to produce a list of City centre and suburban
solicitors from which to choose. If pressed further and the applicant was entirely bewildered with the
task, it seemed sensible to produce a shorter list of solicitors who were highly familiar with Bank
mortgages and which was amended from time to time, so that no one solicitor was named exclusively. To
send an applicant on an uninformed trek around the City to find a solicitor was not all that helpful and if
used in extremis, such assistance at least put the applicant on the right track.

The bank's valuation was often a bone of contention. Forty years hence, borrowers would be able to
obtain from some sources even 100% of the house cost, but at this period the Bank's own policy was
very conservative. Not only was the mortgage offer limited to 80% of the valuation made by the
appointed valuer, but this valuation was often somewhat less than the actual price of the property, even if
newly built. For instance, a new estate in one suburb used ultra-modern materials in the building process
and the Bank's valuer guardedly suggested that mortgages should be limited to 75%, as 'untried materials'
had been used. Few prospective Bank mortgagors were going to be impressed by that. 'Progressive
mortgages' on new properties, by which the loan was paid direct to the builder in stages, each stage being
separately inspected, were subjected to tight controls, the maximum mortgage being 75% of the valuation.
Builders and purchasers were sometimes enraged by these policies, yet the Bank would not deviate from
it and even its own staff suffered similarly. There was a determination not to put the funds of the Bank at
risk and reputedly it had a proud record of having had only one mortgage repossession since the
Department was formed. Unfortunately this led to some depositors saying that "to get a mortgage from
the Municipal Bank, you have to prove that you don't need one!", a rather unfair criticism in the light of
the much later international results of over-zealous lending by mortgagees in the years immediately prior
to 2008. So …. The criteria for obtaining Bank mortgages stayed rigidly in place and demand still
remained higher than could be met.

Having surmounted all these difficulties, an official offer was then posted to the applicant(s), together
with a form of acceptance. On occasions, certain non-legal conditions were contained in the offer, these
usually being matters arising from the valuer's report, such as "property to be repainted externally within
six months"; "manholes require reflaunching", etc. and were unlikely to be followed up; the applicant was
not made aware of this and was trusted to comply. When the offer was accepted, the Town Clerk's
department was briefly instructed to proceed and was supplied with the name of the purchaser's solicitors
with whom they would henceforward be dealing.

The bank's role in the matter was now temporarily complete, for until the legal title to the property had
been satisfactorily investigated, there would be no call for the mortgage sum to be supplied. At the
relevant point, however, the Town Clerk's representative, the vendor's (or builder's) solicitors, and the
purchaser's solicitors would arrange the 'completion' of purchase and the Bank's cheque was handed
over. Finally, the deeds to the property were passed to the Bank for safe custody until the mortgage was
redeemed no later than the twenty or twenty-five years allowed, though frequently total repayment was
made, and permitted without penalty, before the term ended.

All mortgage properties had to be adequately insured for their declared value and the insurance
companies submitted premium demands direct to the Bank; in turn these were debited to the mortgagor's
account. Sometimes the house deeds stipulated that a particular insurance company must be used.
Although the Bank could, if it was thought necessary, demand that its own choice of company be used
instead, or even in addition, this right was rarely enforced and the Bank generally complied with the
insurance clause in the deeds. Conflict over such a matter was undesirable, as the Bank's main concern
was the protection of the mortgaged asset.

The necessary internal account records were instigated and the branch at which repayments would be
made opened up the appropriate ledger record, appropriate, that is, to which type of repayment method
had been chosen. Unless events proved otherwise, the branch would now be the only section of the bank
dealing with the usually well-content depositor(s) who would have a House Purchase passbook in which
was entered every transaction, including annual property insurance. The transaction could be made in
person at the branch counter or by a free standing order from a savings account.

In reflecting upon the generosity of the Bank's mortgage terms, so sought after by so many of
Birmingham's citizens, it is worthy of mention that in the years immediately following World War 2,
mortgage interest rates began to fall, leaving metaphorically stranded those people who, pre-War, had
obtained mortgages at higher rates. In 1947, for these earlier mortgages (and some new mortgages) the
interest, for purely technical reasons, continued to be calculated and charged at the legitimate higher rates,
but with the added benefit of an ex gratia rebate of ½% of the amount 'overpaid' being credited annually
to the savings account of the depositor/mortgagor. This arrangement lasted for several years until the
number of mortgages affected markedly declined and general interest rates began to rise again. This
article did start with the words: "Lucky was the depositor who could obtain a BMB mortgage", did it
not?