The provisions of the Birmingham Municipal Bank Act, 1919, and of subsequent enactments in 1929 and 1936 enable the BMB to make advances to depositors upon the security of freehold or leasehold estate by way of mortgage, provided that:
- the Bank is satisfied that the value of the property is sufficient and that the title thereto is one which an ordinary
mortgagee would be willing to
- the repayment of the advance, with interest, is made within a period, not exceeding thirty years, as shall be agreed
and is secured by an instrument vesting the ownership in the Corporation subject to the right of redemption by the mortgagor;
- in ascertaining the value of any estate for the purpose of making an advance there shall be excluded the value
of any building other than –
(a) a dwelling house; or
(b) a building used or to be used partly as a dwelling house and partly for some other purpose where the value
of the part used or to be used otherwise than as a dwelling house does not exceed one-half the value of the
whole building or five hundred pounds whichever is less.
Before proceeding further it should be explained that the BMB has no legal existence per se and although, for convenience, it is customary to use such expressions as ‘properties in mortgage to the Bank’ and ‘monies advanced by the Bank’, the legal entity is the Corporation of the City of Birmingham which owns property, can sue and be sued and, in law, performs all those acts carried out by its agents, the officers of the BMB. As a department of the Corporation, the Bank is managed by a committee of aldermen and councillors of the city who exercise on behalf of the Council, by way of delegation, the powers to operate a savings bank given in the Acts of Parliament already cited.
Precise rules governing every aspect of the mortgage department exist in the form of ‘regulations’ which have been drawn up by the Corporation in negotiation with the Treasury, the National Debt Office and the Chief Registrar of Friendly Societies. Of the more important of these Regulations, one provides that advances may be made only to depositors with accounts in Savings Department No. 1 which is the original, and up to 1957, the only savings department operated by the Bank; another reserves the right to determine to what extent an advance may be made and under what conditions.
Whilst the policy of the Committee with regard to mortgage business may be changed from time to time in the light of circumstances prevailing, it must always be within the framework of the powers afforded by the Acts and the Regulations. Since the rate of interest charged by the Bank (now 7½%) is traditionally below that charged by building societies generally (8%), there is never any lack of applications. It must be said, however, that the BMB does not advance as high a proportion of the house value as the societies.
The extent to which individual advances are made depends on the funds available and the demand from depositors for facilities. At the present time applications are accepted only from those depositors with a proven record of savings and, to ensure that the funds available are distributed among the greatest possible number seeking assistance, each application is restricted to a maximum of £7,000 provided that amount does not exceed 80% (or 85% in the case of newly-built properties) of the purchase price or mortgage valuation whichever is the lower. This ‘ceiling’ figure is reviewed annually in the light of funds available for the following twelve months and account is also taken of any increase in property values.
It is interesting to note that up to 1970 the BMB had no power to vary the rate of interest charged on a loan once the mortgage deed had been signed and sealed. An important change in policy came about that year when new Regulations enabled the Committee, upon giving one month’s notice to borrowers, to vary from time to time, and in either direction, the rate of interest charged on mortgagers. The new powers were not retrospective and applied only to loans granted from October, 1970.
The whole of the administration relating to advances, including enquiries, interviewing, applications, valuations, insurances, etc etc, is dealt with by the mortgage department at head office. The department is headed by a superintendent who has a staff of six – a senior assistant, three clerical officers and two shorthand/typists.
Each applicant for a mortgage is interviewed at head office by the senior assistant or one of the clerical officers; at busier times, the superintendent also may be involved in this aspect of the work.
A mortgage must be negotiated in the same name or names as that of those in which the property is to be purchased. Although for the purpose of this article reference will be made, in the main, to applications made in the sole name of a male person, it is quite common for husband and wife, engaged couples, brothers and sisters, etc to buy property in joint names. In such circumstances the application for mortgage must be made by both or all parties.
There is no reason why a woman should not apply for facilities in her sole name, be she a spinster or a widow, provided that she is able to satisfy the Bank with regard to her resources and her ability to meet the repayments. Should a property be purchased in the sole name of a married woman, the mortgage will be in that name only, the husband usually being joined in as a surety (guarantor).
Details of an enquiry for an advance are entered on an ‘Interview Record’ from which, when completed, gives an overall picture of the case to be considered. Briefly the information required is:
- full names of applicant, his age, present address, occupation and employers; his gross income, whether married or single; the number and ages of any dependent children;
- the type of property to be mortgaged (flat, maisonette, bungalow, house), the tenure (freehold or leasehold) and the purchase price;
- details of the applicant’s account(s) with the BMB and of investments elsewhere;
- if the applicant already owns property, the amount he expects to realise from the sale subject to any possible outstanding mortgage; and
- the advance required and the repayment term desired.
From this record it can be determined whether:
(a) The applicant is an established depositor in the Bank.
(b) The property is situated within the area prescribed by the Acts subject to any limitations imposed by the Committee.
(c) The advance required is likely to be within 80% (or 85% for newly-built properties) of the purchase price or valuation whichever is the lower.
(d) The applicant’s income is sufficient to meet the obligations under the proposed mortgage.
Each case is judged on its individual merit, income and type of employment being matters which receive particular consideration. Generally, a prospective borrower may apply for an advance of up to approximately twice his yearly gross income, but if evidence indicates that his earnings are likely to increase within a reasonable time, he may be given the benefit of a higher advance. The inclusion in the mortgage of a surety can also mean, perhaps, a larger mortgage than that which might otherwise be considered.
A surety is required to indicate in writing that he is willing to fulfil the obligations of this role and, naturally, has to satisfy the Bank that his financial position is such that he could meet any commitment which might arise during the term of the mortgage in the event of default by the borrower.
A certificate of the National House-Builders Registration Council (NHBRC) is required by the Bank in respect of any newly built property except where:
(i) The property is being erected under the supervision of a qualified architect or surveyor directly employed by the purchaser;
(ii) The property is being erected by an individual or a self-build group.
This policy was introduced in 1966 following representations by the Minister of Housing and Local Government who was concerned that new houses for owner occupation should be properly built and that purchasers should be protected against shoddy work, should have cover against hidden structural defects and have protection against the default or bankruptcy of the builder. The Minister felt that the NHBRC scheme offered comprehensive safeguards for such purchasers.
Even if the security offered is adequate, an application for an advance which is to be utilised other than for the purchase of property or the improvements thereto is not entertained. Applications for ‘second mortgages’ (ie where the properties are already the subject of mortgages to other lenders) are not accepted.
The usual repayment term for an advance on freehold property or on leasehold property where the lease has not less than 50 years unexpired, is 20 years, except in the case of newly erected properties when a maximum term of 25 years may be considered. When determining the period for repayment, the age of the applicant is taken into account as it is desirable that the advance should be repaid by the time he reaches normal retirement age. The age of the property, its location, and any observations made by the valuer can also be factors which may affect the period of the loan.
Properties to be considered are inspected by suitably qualified persons appointed by the Committee. At present, the Bank has a panel of three, each of whom is either the principal or one of the principals of established firms of estate agents, surveyors and valuers in Birmingham. The fees charged are agreed from time to time with all three valuers. The reports and valuations submitted by these valuers are confidential and applicants are not entitled to any information or advice obtained by the Bank therefrom. Applicants are advised that although an advance may be made, no warranty as to the value or condition of the property is implied. An applicant may approach any of the appointed valuers for a private report on the property and this will include both a market and a mortgage valuation; in such instances the applicant must agree a fee with the valuer whom he pays direct and the Bank accepts a copy of the private report without further charge.
If an application appears to be satisfactory in all respects it is submitted to the general manager who, under the powers delegated to him by the Committee of Management, can give it his seal of approval. Exceptionally, where there are perhaps some unusual circumstances, an application may be referred to the Committee for a decision. Following approval, a mortgage offer is forwarded to the applicant.
A written acceptance of a mortgage offer is always required. On receipt of such acceptance, instructions are forwarded to the Town Clerk, Birmingham, as the Bank’s solicitor, who, in turn, writes to the applicant’s solicitor requesting information regarding the title of the property which, if proved to be satisfactory, results in him forwarding a legal charge, duly engrossed, for the borrower’s signature. He requisitions from the Bank a cheque, drawn payable to the borrower per his solicitor, for the amount of the advance. In due course, the Town Clerk informs the Bank, in writing, of the date on which the mortgage arrangements have been completed.
The first repayment on a mortgage is due one calendar month from the date of completion and subsequent payments on the same date in each month. Instructions to open a mortgage account are forwarded to the manager of head office branch. A repayment pass book is sent to the borrower who can make his monthly repayments at any branch of the Bank, such payments being channelled through the internal clearing system to the head office branch for the credit of the account.
The Regulations require that all properties mortgaged shall be comprehensively insured by the Bank. In his acceptance of the mortgage offer, the borrower is required to indicate the extent to which he wishes to insure the property; the mortgage department check that the proposed cover is reasonable. As far as possible, for administrative convenience, cover is effected with one particular insurance company. However, in the case of leasehold properties, there can be a requirement in the lease that the insurance must be placed with a named company; to avoid the necessity of a borrower having to pay for two covers – one to satisfy the Bank and another to comply with the lease – the Bank accepts the position and insures with the company named. In all cases the Bank arranges the policy to be issued, pays the first and subsequent premiums and debits any outgoings of this nature to the respective mortgage accounts.
The title deeds of a mortgaged property are received from the Town Clerk about four weeks
after the date of completion. These deeds are checked, placed in envelopes bearing the
number of the mortgage account and then filed numerically in cabinets in the mortgage
department’s strong room. The deeds are checked each year by the Bank’s auditors.
The redemption of a loan entails the legal charge being forwarded to the Town Clerk
for vacating (an endorsement to the effect that all monies and interest secured therein
have been repaid). The title deeds are then handed to the borrower personally who
gives a receipt therefore; alternatively, if authorised in writing by the borrower,
the Bank may hand the deeds to a solicitor acting on his behalf.
this article is taken from two pieces written by A W (Bert) Hopkins
[NOTE: this article is taken from two pieces written by A W (Bert) Hopkins
for the Journal of the Savings Banks Institute (January and March
for the Journal of the Savings Banks Institute (January and March 1972)
under the title BMB Mortgages. At that date, Bert Hopkins held the
under the title BMB Mortgages. At that date, Bert Hopkins held the
position of Assistant General Manager, and had previously been
position of Assistant General Manager, and had previously been the
House Purchase Superintendent from 1965 to 1971.]
House Purchase Superintendent from 1965 to 1971.]