October 14th 1922 - J P Hilton to Neville Chamberlain
I am requested by the Chairman (Councillor Appleby) to send you herewith a copy of the scheme for financing the building of houses, which has been prepared in conjunction with myself and discussed with a Sub-Committee of the Estates Committee.
J P Hilton
BIRMINGHAM MUNICIPAL BANK
Scheme to finance the building of Houses.
1. The Birmingham Municipal Bank to lend a sum of money (the amount to be decided upon later)to the appropriate Committee of the Council to enable them to build houses, or to make advances on buildings in course of erection.
2. The interest chargeable upon such loan to be at the rate of 5% per annum, or such lower rate as may from time to time be charged by the Bank to Depositors operating the House Purchase Department.
3. The period of years in which the loan is to be repayable to be 20 years but may be extended by arrangement between the bank and the appropriate Committee.
4. The Estates Committee as and when houses are ready for occupation would arrange to sell the same to purchasers requiring a house to live in.
5. The purchaser could obtain an advance from the Bank to enable him to buy his house, such advance would be made in the usual way and under the conditions laid down by the Rules in the Mortgage Deed.
6. The Town Clerk would prepare the Mortgage Deed for the Bank, as now, and such Deed should include special clauses safeguarding the Corporation's interest in the property.
7. The purchaser in thus paying to the Committee the Purchase price, viz. the advance he has had from the Bank, plus his own cash contribution, would enable the Committee to re-use that money for the erection of another house.
8. The figures below show the weekly sum required to repay the amount advanced to the purchaser with interest by the Bank, the calculations being based upon a house sold at £435 and on the assumption that such a figure would represent the value of the house.
Value of house £435
Amount advanced by Bank
(80%) £348 say £350
13/4d per week during the 1st year.
12/4d " " " " 4th "
11/4d " " " " 7th "
10/3d " " " " 10th "
9/3d " " " " 13th "
8/4d " " " " 16th "
7/3d " " " " 19th "
With pro rata decreases during the intermediate year.
In addition to the above payments the purchaser would have to pay the ground rent if the house is sold leasehold, and the rates.
Before definitely fixing the price at which the houses will be sold, it would be well to discuss the point with the assessment Committee, and settle the amount at which the houses will be assessed.
December 16th 1922 - J P Hilton to Neville Chamberlain
The question of rate of Interest which can be allowed by the Finance Committee on Municipal Bank monies placed with the Corporation at call has recently been before the Finance Committee, and the Acting Treasurer of the City has suggested that instead of increasing the rate of Interest at present allowed by the Corporation for mortgage money received from private investors it might be possible to obtain sufficient capital by Municipal Bank monies at a rate which would be favourable to the Finance Committee, and at the same time helpful to the Bank.
The Acting Treasurer of the City has prepared a statement, dated November 24th 1922, (copy of which is attached hereto)giving a forecast of the position as regards the investment of the Bank Funds at the present time, and an estimate of the rate of Interest which might be decided upon in respect of investments with the Corporation of over a £2,000,000 figure.
I have examined the statement referred to and am of opinion that the arrangement outlined is one to which the Bank Committee should agree. I base my opinion upon the following grounds:
1. That the stabilization of the rate of interest on the sum of £2,000,000 for a period of years, is a desirable step, and that the rate of 5% suggested, having regard to the nature of the investments, is a fair and proper rate.
2. That the rate of 5% chargeable to borrowers in respect of the Purchase of Houses will be maintained.
3. That the rate of interest proposed on other monies placed with the Corporation is the market rate, ie the rate allowed to private lenders to the Corporation.
4. That the interest receivable by the Bank under this arrangement will be sufficient to enable the Bank to meet its liabilities and to carry a reasonable sum to the reserve Fund.
5. That the Reserve Fund is sufficient to dispel any anxiety as to meeting the natural development of the Bank.
It is a sine qua non that the Bank should be managed in such a way as to be self -supporting, and so long as that result is obtained and a reasonable profit disclosed by the accounts of the Bank, there is no risk of adverse criticism. At the same time it would be mistake to attempt at this stage to run the Bank on a finer margin than is indicated in the Statement prepared by the Acting Treasurer. Although the position of the Bank, as regards its ability to meet any demands on the part of depositors, is a strong one at the moment, there is always the risk, which should be appreciated, of changes occurring in social conditions, which will call for a demand on the part of depositors for money at short notice, and the money must be available.
I am given to understand that the arrangements outlined in the Acting Treasurer's Statement will be acceptable to the Finance Committee, and that it is desirable that at their next meeting the arrangements should be confirmed with a view to becoming operative as and from January 1st 1923. As a result of my examination of the Bank's position at November 30th last, I am able to recommend you to acquiesce in the arrangement, which, as the Acting Treasurer points out, will be to the advantage of both Committees.
If you agree with the proposals it will be necessary to report accordingly to the General Committee which meets at 11.30 on Monday morning next.
J P Hilton
Report by Treasurer's Department - November 24th 1922
RATE OF INTEREST TO BE ALLOWED BY THE CORPORATION ON
MUNICIPAL BANK MONIES INVESTED ON MORTGAGE
Municipal Bank deposits at the present date are as under:-
Amount Utilisation Rate % Interest Earned
270,000 Advances on Mortgage
on account of house
purchases 5% 13,500
1,840,000 Advances on Mortgage
to Corporation 5% 92,000
180,000 Cash at Joint Stock
Bank 3½% 5,250
£ 2,290,000 £ 110,750
On the above-mentioned figures an estimate for 12 months would be:-
Interest received (as above) 110,750
Interest paid to Depositors 80,150
Interest gain £ 30,600
From the above-mentioned figures it will be seen that the total amount of Interest received for one year is £110,750. From this should be deducted the total amount of Interest which the Municipal Bank has to pay to depositors, namely, £76,550. This leaves an Interest gain of £34,200. Assuming that the working expenses of the Municipal Bank for 12 months is £27,600, a surplus of £3,000 remains at the end of the period. This would be in addition to the profit made in July last on the realisation of 5¾ Exchequer Bonds at a premium, which the Municipal Bank has in reserve.
In determining the future rate of Interest to be paid by the Corporation on Municipal Bank monies accepted on loan the question arises as to whether the rate fixed upon is to apply onwards or from some subsequent date now to be decided upon, and it should be noted:-
(1) That all money received on Mortgage from the Bank is, at the present moment, earning interest at 5%, as follows:-
1,640,000 Invested in 5% War Loan
200,000 Advanced to Guardians on Mortgage at 5% (part of £450,000).
(2) With regard to all future monies it is suggested that the following course be adopted:-
(a) £160,000 be accepted by the Corporation at 5%, and that this amount be set aside against the loan with the Guardians, thus making a set-off of £360,000 against the £450,000 loan. (If this course be agreed to, the Municipal Bank Committee will then have £2,000,000 on loan to the Corporation earning interest at 5%, apart from the £270,000 advanced on account of House Purchase also at 5%.
(b) All further monies (up to - say - £500,000) be accepted at 4%. This rate is justified by the following facts:-
(i) The Bank has sufficient margin on present turnover to carry on without anxiety.
(ii) It has, in addition, a large Reserve Fund to fall back upon.
(iii) 4% is the rate which the Corporation is offering to outside investors, and if any higher rate is to be given it would be better policy to increase the rate to the public than to allow preferential terms to the Municipal Bank, because it is most desirable that the local tender should be encouraged.
Assuming that the terms suggested above are agreed to, the Municipal Bank - when the £500,000 has been lent to the Corporation at 4% - will still have an average yield of £4. 15. 0% on the total amount of their investments, as follows:-
2,000,000 with Corporation @ 5%
270,000 House Purchase @ 5%
500,000 with Corporation @ 4%
100,000 with Corporation @ 3½%
(Cash at Bank)