Towards the end of the First World War, the Ministry of Reconstruction (one of the wartime Ministries) set up a committee to 'consider and advise on the practicability of assisting any bodies or persons (other than local authorities) to build dwellings for the working-classes immediately after the war, whether by means of loans, grants, or other subsidies, and whether through the agency of State or Municipal Banks or otherwise.'

The committee's final report (dated February 5th 1919) commented that 'it is desirable that the larger Municipalities generally should be empowered to establish Municipal organisations of the nature of Housing Banks, which would attract the savings of the working-classes and allow of the funds being devoted to assisting depositors to purchase houses for their own occupation, or, under conditions properly safeguarded, to advancing money to persons or bodies building houses for the working-classes within the Municipal area or on land adjacent thereto.
'We believe that there are many small investors who would be more willing to deposit their savings with their Municipality than with, say, a building society or even the State.
'We believe, too, that the prospect of one day owning their homes would provide a strong motive for accumulating savings. In this way thrift would be stimulated, and more capital provided for housing.'

 

Although these recommendations did not result in any appropriate legislation, they proved useful in the argument for obtaining mortgage lending facilities for the future BMB when the Birmingham Corporation Bill of 1919 came to be examined by the Local Legislation Committee of the House of Commons on June 25th 1919.

 

During that examination, Neville Chamberlain (one of the principal witnesses who gave evidence in relation to the Bank's clauses in the Bill) included the following in his address to the committee: 'The most important new feature of the proposed Bank, however, is the establishment of a Housing Department with power to make advances for housing purposes.
'I attach the very highest importance to the proposal to advance money to depositors to purchase houses.
'I do not want to prevent a man from purchasing his own and the house adjoining if that is necessary, but we had not any idea of encouraging speculation in house property. It will not be only Corporation houses which will be purchased under this scheme.
'The effect of allotment gardening so largely developed during the war, is very marked in this connection.
'In Birmingham we have, for instance, upwards of 13,000 war allotments which have been started entirely since the war. These men have got a taste for gardening ingrained in them, and they have seen what a benefit it can be to them, and they will be very desirous of having gardens in the future.
'I am sure the committee will understand that it is an enormous extra inducement to a man to desire to buy his house if attached to that house there is a garden, so that any labour or capital which he may put into the cultivation or improvement of the garden becomes actually his own possession in the long run.
'I think that there is no doubt that the crux of the whole housing problem is finance, and it has been a serious anxiety to the Treasury to find the necessary money for these gigantic housing schemes.
'My idea is, that if you could harness up, as I call it, the savings of the working-class and get them in to help in this matter, you would make a very substantial contribution towards the solution of that problem. Those savings would be of real benefit, although small in amount individually, to the people who save them, and incidentally a real benefit to the State.'

 

As a result of these recommendations and arguments, and against the background of a nation desiring to see the spread of house ownership in the aftermath of the First World War, the Birmingham Corporation Act of 1919 included provisions to enable the new bank to grant loans for the purchase of houses.
Consequently, it was necessary to consider the procedures to be adopted for the new House Purchase Department, and investigative visits were made (by the City Treasurer and the Bank's General Manager) to towns with successful records of house purchase systems. The three towns visited were Bolton, Burnley, and Ilford.

 

Bolton Co-operative Society (said to be the third largest society in the country) had a scheme which was responsible for 28% of the total houses in Bolton having been purchased. The principal aspects of Bolton's system were:
   - the capital element of each month's repayment was a simple division of the loan amount by the number of the months in the period of the

     loan;
   - the monthly interest charge was calculated on that month's outstanding balance;
   - borrowers had the option of making payments in excess of the monthly amount calculated from the previous two items.

 

At Burnley, almost 25% of the town's houses had been purchased through building societies, and it was claimed that this was the foremost town in England in the number of artisans owning the houses they lived in. Mortgages were arranged on the usual building society lines.

 

Ilford Urban District Council had operated a house purchase scheme since 1902 under the Small Dwellings Acquisition Act of 1899, and were one of the few local authorities meeting with any success. The amount advanced was approximately 75% of the purchase price, with repayments required on a fixed scale covering principal and interest.

 

The Bank chose to adopt Bolton's system as it gave the mortgagor the benefit of the interest being calculated monthly (instead of yearly or half-yearly as in a typical building society), and incentivised the borrower to discharge the mortgage earlier than the agreed term.

Some aspects of the early history of the House Purchase Department are illustrated by the following extracts from the Bank's archives. Unless otherwise stated, all extracts are from the Bank's Annual Reports:

 

1920: The committee have taken great interest in the development of this department, which is an organized attempt by the Municipality to provide facilities for the citizens to become owners of the houses in which they reside.
During the seven months 499 applications were dealt with and advances made amounting to £39,873.
In order to carry out what, in the opinion of the Committee, is the real object of the powers conferred upon the Bank, it has been decided not to grant a larger sum than £800 upon any home, thereby securing the benefits of the Department to those for whom the Bank was more especially established.
Under the provision of the Land Settlement (Facilities) Act, 1919, the Council are empowered to arrange for advances to be made to small holders for the purchase of live stock, implements, etc., and it has been arranged for such advances to be made by the Bank.

1921: The policy of the Committee has been to grant advances on pre-war houses up to four-fifths of the market value, subject to a maximum advance of £600 in respect of any such house; while in the case of post-war houses the Committee have adopted the policy of advancing up to 50 per cent. of the building cost (plus the Government subsidy), with a maximum advance of £800. These limitations have been introduced in order that the benefits of this department may be realised by those for whom the Bank was particularly established.
The Committee have also thought it wise to place a limit on the amount of the funds which they are prepared to use in making advances for House Purchase, and they have decided that no more than one-third of the total funds of the Bank shall be used for that purpose, thus preparing in liquid form sufficient funds to meet any demands which the depositors may find it necessary to make upon the Bank.

1923: The Bank has made advances to 17 persons under the Land Settlement (Facilities) Act, 1919, amounting to £920, and at the end of March, 1923, there were 31 loans in force, representing £2,180. In each case the loan is guaranteed by the Local Authority.

1925: There has been a marked increase in applications for advances to buy houses during the year; 1,108 having been granted and £352,564 advanced. The total number of mortgages arranged since the Bank was established is 3,238, and the amount advanced £974,959. It is gratifying to the Committee to report that the monthly repayments of the loan and interest have been maintained most satisfactorily. The Committee regard the comparative immunity from arrears as being due to the popularity of the simple and easily understood method of repayment arranged, which gives the borrower every possible advantage. The practice of charging interest at 1d. per pound only on the diminishing monthly balance acts as a constant inducement to the borrower to accelerate the reduction of his balance and so become the owner of his house earlier.

1926: Municipal Houses - The policy adopted by the City Council of selling houses on payment of a low deposit has proved attractive, resulting in no less than 1,422 mortgages being arranged. Depositors and the public generally should know that a deposit of £20 will secure a non-parlour type house or £25 a parlour type.
Those who are tenants of Municipal houses can become owners by paying a deposit equal to 1 per cent. of the sale price. This means that for £4 or £5 tenancy can be converted to ownership. Several tenants have already taken advantage of these exceptional terms, and as the terms become more widely known others will, doubtless, avail themselves of the opportunity of owning the house they live in.

1927: Municipal Houses - The special arrangement whereby a deposit of £20 for a non-parlour type and £25 for a parlour-type house, (or in the case of a sitting tenant 1% of purchase price), enables a depositor, with the Bank's assistance, to purchase a house, has resulted in 1,000 loans being granted during the year, bringing the total to 2,422.

1928: In a few cases it has been necessary to take action against mortgagors evading their obligations.

1930: The great advantages offered by the Bank, as compared with building societies, should be considered by purchasers before entering into a mortgage. The interest charge is one penny per pound per month (or 5%), and is adjusted each month according to the balance outstanding. We thus give our mortgagors the advantage which accrues from a monthly adjustment, whereas a mortgagor of a building society does not get such an advantage where the interest adjustment is made yearly or half-yearly. It will also be found that many building societies are charging interest at a higher rate than 5%. The mortgage deed is prepared free of cost by the Town Clerk, which is another advantage offered by the Bank. The amount of the advance is governed by a professional valuation, for which a nominal fee of 10/- is charged. We have generally granted loans amounting to 80% of the valuation, but are prepared to advance up to 90% in approved cases.
Allotment holders will be interested to learn that the Bank is now empowered to lend money to enable an allottee to purchase his allotment. This power is contained in the Birmingham Corporation (General Powers) Act, 1929, which received the Royal Assent in December last. Already 25 advances have been made.

1934: Important extensions of house purchase facilities have been introduced whereby advances up to 90% of the valuation and for a period not exceeding 25 years can now be obtained. In connection with new housing estates where houses are sold subject to a fixed deposit, advances can be obtained up to 90% of the purchase price in all cases where the vendors enter into an agreement with the Bank. To meet cases where borrowers desire to repay their loans by equal instalments, a scheme has been prepared. Borrowers will therefore have the choice of adopting the Bank's usual method, which provides for payment of a fixed monthly instalment of principal with a reducing interest charge, or the alternative of a fixed amount representing principal and interest which will apply throughout the full period of the loan. Schemes have also been adopted whereby borrowers may combine life or endowment assurance with house purchase. One method provides for taking out a life policy for the full amount and period of the loan, and for the payment of a single premium only which can be added to the loan. By this method the dependents of a borrower would be free from financial anxiety as regards the house if the borrower should die before the expiration of the loan, as the amount covered by the policy would be sufficient to meet the liability and discharge the mortgage. Another method provides for taking out an endowment policy for the full amount and period of the loan, the premium and interest charge being paid monthly. The principal would not be paid until the endowment matures or at the previous death of the borrower, when the loan would be discharged from the proceeds of the policy. These schemes are worthy of consideration by prospective house purchasers, who are advised to apply for full particulars at any office of the Bank.

1935: The extended facilities for house purchase, referred to in last year's report, have been appreciated, and increased business has resulted, despite the competition due to the greater number of building societies from various parts of the country now operating in Birmingham and adjoining districts. Many of these societies have entered into schemes with builders and others for the development of housing estates, whereby houses can be sold on a fixed deposit, the builder finding collateral security sufficient to cover the amount of the advance which is in excess of the amount the society would normally advance. The Bank has been urged to make similar arrangements, and as the result of interviews with a number of builders, satisfactory schemes have been agreed upon. The main principle in such schemes is that the house must be of a standard which will satisfy the Bank's Valuer, and where this is the case loans can be arranged. It is natural that our depositors should look to the Bank for assistance, and we are desirous of helping them, but would stress the point that house purchase is a serious matter, and should only be undertaken with due regard to the liabilities of a mortgage. Depositors should know exactly how much they will have to pay month by month in principal, interest, and other charges, before binding themselves to purchase.

1937: It may not be generally known that the extended powers granted to the Bank to make advances applies not only to the purchase of a house. An advance can be granted on the security of a house already owned by an applicant. Advances are not restricted to houses in the City of Birmingham or other areas in which a Branch Bank has been established, but can be made on the security of any freehold or leasehold property which is situate in the area of any county or county borough which adjoins Birmingham. The two county boroughs adjoining Birmingham are West Bromwich and Smethwick, and the counties are those of Warwick, Stafford and Worcester.

1943: Although the work of the Bank has been concentrated upon rendering financial help to the Government for the prosecution of the War, it has been possible to render assistance to 186 depositors in the purchase of their houses. This brings the total number of mortgages effected since the establishment of the Bank up to 19,936, and the total amount advanced for that purpose up to £7,988,000. From the Balance Sheet it will be seen that the amount outstanding on the mortgages has been reduced to £2,202,395, which means that 12,544 depositors have completely paid off their loans and are in full ownership of their houses.

 

1943: Having regard to substantial discharges of mortgages and smaller numbers of new advances being made, the Committee is invited to consider some relaxation in present practice, which is to advance not more than 80% of valuation. Improvement in the national position, compared to 1940, appears to have created confidence in the purchase of houses. It has been noticed for some time that more purchases are being effected. Restriction to 80% of valuation prevents, in some cases, new business being obtained, because more favourable terms can be secured elsewhere. While it would be unwise to depart from the policy of accepting valuations made by Mr Wilde on behalf of the Bank as the basis, there are cases where discretion may be exercised, and a larger advance than 80% might be made with reasonable safety. (General Manager's Report to the Bank Committee dated July 16th 1943)

1944: Business in the House Purchase Department has been continued, though to a much less extent than in pre-war days. Opportunities to purchase houses are not so numerous, and the inclination to buy houses at the present time is not so pronounced. No doubt, when the war comes to an end and houses are available at reasonable prices, advantage will be taken by many to purchase their houses.

 

1944: Mr Wilde [the Bank's Valuer] has asked that the question of fees payable to him for house purchase valuations may be reconsidered, in view of the considerable reduction in valuations during the last few years.

The present arrangement, which was made in October 1936, provides for a fee of £1 being paid by the borrower where the property is situate within 10 miles of the Town Hall and £2 where the property is beyond that distance.

The following figures show the drop in house purchase valuations:

Year ended                    No of

31st March                  Mortgages

 

     1936                             1,284

     1937                             1,673

     1938                             1,163

     1939                                 928

     1940                                 760

     1941                                 281

     1942                                 227

     1943                                 186

     1944                                 206

 

When dealing with larger numbers, Mr Wilde could arrange his visits so that several valuations could be made during the same journey, but that has not been possible since 1940. In most weeks there have only been two or three cases, and at times the journeys have been from one extreme of the City to the other.

Having regard to fees now being paid for professional valuations, there appears to be a case for an increase in respect of Bank Valuations, and the Committee are invited to reconsider the matter. I suggest that until the business recovers to an extent approximating to that which operated when the present arrangement was made, an increase should be sanctioned, but when business reaches normal the present basis should again apply. (General Manager's Report to the Bank Committee dated July 1944)

 

1946: Rate of Interest - As this matter was considered by both Sub-Committees in January last, it was considered desirable that a Joint Meeting should be held to review the question, which it will be recalled was deferred until May.

A full report of the General Manager on the matter, which was previously circulated to all the members, was submitted, after careful consideration of which, it was decided that no further change be made at the present time in the rate of interest on House Purchase Loans.

Valuations - Arising on the discussion as to the rate of interest on Mortgage Advances above-mentioned, the Joint Meeting gave careful consideration to the question of increasing the facilities to potential borrowers.

The procedure for dealing with applications was defined and the following Minute of the General Committee passed on 16th October, 1944, as to the valuation arrangements with Frank Wilde was read:

7590. RESOLVED: That a flat rate of £1. 10. 0. per valuation be paid to Mr Frank Wilde (the Bank's valuer) irrespective of the value of the property or the distance from the centre of the City and that a retaining fee of £100 per annum be paid to Mr Wilde to cover all his expenses and services in connection with such valuations: this arrangement to remain in force for three years, the terms to be then reviewed; also that the arrangements made on October 19th, 1936, in respect of valuation fees be amended accordingly.

After careful consideration of existing circumstances regarding applications for House Purchase, it was decided to recommend your Committee to make the following arrangements:

 1 That a panel of three valuers be selected to carry out valuations on behalf of the Bank.

 2 That such panel consist of Mr Frank Wilde, of 36, Bennett's Hill, Birmingham (already carrying out valuations for the Bank); and two other

     Valuers to be nominated.

 3 That the valuation fees payable to Mr Frank Wilde for valuations undertaken by him be in accordance with Minute No 7590 of the Bank

     Committee until the 16th October, 1947, when the terms be reviewed.

 4 That the fees to be paid to the other Valuers be fixed at £1. 10. 0. in respect of each valuation, together with the cost of printing and

     postage.

 5 That the allocation of the valuations to the respective valuers to be left to the discretion of the General Manager.

Your Committee are reminded that apart from ordinary valuations, the fees payable to Mr Wilde for war damage inspection and assessment were fixed at £2. 0. 0. per property, irrespective of value. Also that with regard to the sale of houses on the Pheasey Estate, Mr Wilde was paid fifty guineas for his leasehold valuation and five shillings for each certificate. (Joint Report of the Finance & General Purposes and House Purchase Sub-Committees dated June 17th 1946) 

1947: Although building restrictions have limited the activities of the Advances Department, every endeavour has been made to help applicants who had the opportunity of purchasing houses. As a further inducement your Committee announced that, from 1st January last, although new mortgages would continue to provide for interest at the rate of 4% per annum, a concession of one-half of a percent would be allowed until further notice, making the effective rate of 3.5% per annum. These ex-gratia allowances will be credited to the Savings Bank accounts of mortgagors at the 31st December each year. This method of "Saving while you buy" is attracting considerable new business.

 

1949: Circular issued to branches (see right) re New Rate of Mortgage Interest