House Purchase-20-Five-cont-2

House Purchase Department:

The First Five Years (continued)

Other policy issues that arose for the Committee to consider included:

The problem of false applications. The Bank's first valuer, Mr Lancaster, reported that a number of cases had come before him where a valuation had been asked for a property, possession of which could not be obtained. The Committee agreed to his request that where, in his opinion, he is not satisfied that arrangements have been made by the applicant for the purchase of the property in question as security, a valuation fee of £2. 2s. 0d. should be charged. (January 5th 1920)

Legal Preliminaries. This issue was whether the Town Clerk should act for the depositor as purchaser of the property in respect of which an advance was made. The Town Clerk, on the instructions of the F&GP Sub-Committee, laid the matter before the Birmingham Law Society. The Society raised strong objection to the Corporation acting for the depositor in regard to the conveyance of the property, on the grounds that the proposal would encroach on the rights of the legal professional generally. Accordingly, the Town Clerk was instructed not to act for a depositor in connection with any purchase. (January 5th 1920)

Limit of Amount of Advances. At its meeting on March 29th 1920, the Committee made the following decisions in relation to the allocation of funds for mortgage advances:

- the proportion of the Amount Due To Depositors to be utilised for the purpose of house purchase advances not to exceed One-Third;

- the maximum advance to be £600 in the case of a pre-War house, but £800 in the case of a new house "owing to the enhanced cost of construction".

These decisions were made following the receipt of some applications in excess of £2,000, but the figures originally recommended by the F&GP Committee were 25%; £700; and £1,000 respectively. The amended figures suggest that the General Committee wished to expand the total amount of the Bank's mortgage lending, but desired that individual loans were smaller - either to encourage the purchase of lower-priced property or to minimise risk. In the event, the maximum proportion of advances to depositors' funds only ever reached 20.09% (1927).

The question of the Rate of Interest to be payable on new advances (existing mortgages had a fixed rate of 5%) was raised on May 3rd 1920 when the matter was referred to the F&GP Sub-Committee. This Committee, meeting on June 7th 1920, reported that:

The Manager has been in communication with various Building Societies, and it appears that advances have been curtailed considerably, and the rate of interest is being or has already been increased. The Manager stated that Mr Neville Chamberlain agreed with the recommendation to increase the rate.

It was agreed that the interest rate be increased to 6.25% on loans applied for from June 14th 1920.

The rate of interest again came under review in December 1921, but was unchanged.

The next review was on May 5th 1922 when it was resolved that:

as regards future advances granted for House Purchase, the rate of interest payable by a Mortgagor shall be One penny per pound per month; also that with the object of applying this reduction in the case of Mortgagors at present paying interest at the rate of One penny and one farthing per pound per month, the Council be recommended to authorise the necessary steps to be taken to obtain the required alteration to Rule 68.

This Rule effectively provided that a loan's interest rate was fixed for the term agreed by stating that the rate should be that "which is in force at the time the advance is made". Pending an amendment of this rule, the intimation of the Treasury and the Chief Registrar of Friendly Societies was obtained to reduce the rate on these particular advances from 6.25% to 5%. The exact date when this came into force is unknown, but was after July 1922.

Advances on Post-War Houses. The above decision to limit the maximum advance on Post-War (ie 'new') houses to £800 came under scrutiny when an enquiry was received from Weoley Hill Limited, as the following report of the F&GP Sub-Committee (dated August 30th 1920) shows:

Your Sub-Committee have had under consideration an enquiry from Weoley Hill Ltd as to the amount the Bank Committee would be prepared to advance on certain newly erected houses. It was pointed out that the cost of construction of the houses in question was £1,260 per house, which after deducting the Government subsidy of £260 would be £1,000.

It will be remembered that the Committee passed a resolution on the 29th March 1920 defining the limit of advances on a new house at £800, but in view of the exceptional circumstances prevailing in regard to building construction at the present time, and the possibility of a fall in the value of such properties during the next few years, your Sub-Committee consider it desirable that the policy of the Committee in regard thereto should be defined.

Your Sub-Committee are of opinion that in making advances of this nature, the applicant must be prepared to pay a larger proportion of the purchase price than heretofore and that it will be necessary too for the period of repayment of the advance made by the Bank to be considerably shortened. They have, therefore, requested the Chairman to lay before your Committee his recommendation in regard to the application of these principles.

The General Committee considered the above and

RESOLVED:- That the matter be referred to the Finance & General Purposes Sub-Committee with instructions to have prepared a Table of Statistics showing the probable depreciation of value of post-war properties over various periods, and to submit their recommendations in the matter to this Committee in due course.

The F&GP Sub-Committee reported accordingly at a meeting on October 4th 1920:

.... this question has been further considered by your Sub-Committee and Tables .... have been prepared showing the annual payments in principal and interest in respect of advances of £800 and £600 repayable in 10, 15 and 20 years.

In view of the uncertainty as to the depreciation of the value of these properties during the next few years, the Sub-Committee feel that the period of repayment should not exceed 10 years and that the amount of advance to be made should be calculated on a somewhat different basis to that in practice with regard to pre-war houses, ie on a pre-war valuation plus a percentage.

They therefore now recommend that advances on post-war houses should be granted in approved cases up to a limit of 50% on the ascertained actual cost of building or buying such property, provided that no advance shall exceed the present maximum of £800, and that the repayments be made within a period of ten years.

They also recommend that these provisions should apply to all such houses as are constructed in accordance with the certificates of the Ministry of Health and the Corporation.

In this connection Mr A L Horsburgh, Architect, of the Ministry of Health, attended before your Sub-Committee on Friday last, and submitted model and particulars of a house to be partially built of concrete, in respect of which he desired an advance. The approval of the Ministry of Health and the Corporation had been received to the plans, and the building was in course of construction. Mr Horsburgh has been asked to attend the Meeting today and lay his model before your Committee.

The General Committee agreed that advances on post-war houses, constructed in accordance with the certificates of the Ministry of Health and the Corporation, be granted in approved cases up to a limit of 50% of the ascertained actual cost of building or buying such a property, subject to a maximum amount of £800, and a maximum term of 10 years.

The Committee informed Mr Horsburgh that the Bank was prepared to make an advance towards the purchase of his semi-concrete bungalow subject to the same rules as applied to post-war houses.

An exception to the 10-year rule for post-war houses was sanctioned in March 1921 when a loan of £200 was sought against a purchase price of £800. The HP Sub-Committees were empowered to extend the period of repayment up to a limit of 20 years in future cases where it was ascertained that the value of the security was so much in excess of the amount of the advance required as to adequately safeguard the Bank against future depreciation in value. The basic principle established was that the period of loan should be based on the proportion of the house's cost: 50% equalled 10 years; 33.3% equalled 15 years; 25% equalled 20 years.

In April 1921, the Bank's policy in relation to the valuation of new houses was extended by instructing the valuer to include in his report a statement as to the liability attached to the property in respect of unsewered and unpaved roads.

Delays by Mortgagor's Solicitor. At a Committee meeting on July 23rd 1920, the Manager reported that in five cases advances had been sanctioned before December 31st 1919 and the Mortgages were still uncompleted. The General Committee resolved that where, owing to delay on the part of the Mortgagor's Solicitors a Mortgage Deed is uncompleted after a period of 3 calendar months from the date of the Committee's decision to grant a house purchase advance, the Town Clerk be authorised to take steps to conclude the arrangement.

Applications for permission to sell. The House Purchase 'B' Sub-Committee reported (February 21st 1921) that they

had before them at their last meeting 4 applications for permission to sell properties mortgaged to the Bank. In each case the prospective purchaser had applied to the Bank for an advance on the property concerned.

Your Sub-Committee were of opinion that under these circumstances a suggested sum of £3. 3s. 0d. should be paid to the Bank for their charges.

The General Committee agreed that such a charge should apply in these circumstances.

Sale of mortgaged property. By April 1921, the Bank was receiving numerous applications that involved the sale of a property and/or the transfer of a mortgage within a few months after the completion of the original mortgage. There were also many cases of mortgages being paid off within a very short period. In order to secure adequate reimbursement for the additional work involved, where a mortgaged property was sold (or the original mortgage was discharged) within 12 months from the completion of the mortgage, the Bank required reimbursement of its charges plus a fee in respect of legal costs:

- not exceeding £500 - £3. 3s. 0d.

- not exceeding £750 - £4. 4s. 0d.

- exceeding £750 - £5. 5s. 0d.

However, on December 19th 1921 the HP Sub-Committee were advised by the Town Clerk that it was doubtful whether such charges were admissible under the Bank's Rules and Regulations. It was therefore decided that the question of such charges be held in abeyance until an amendment of the Rules and Regulations came under consideration at which time it should be considered whether the Bank should obtain the power to make the charges as above, or whether to make a charge in respect of the preparation of all mortgages. In the meantime, it was decided that the application of such charges be held in abeyance

Depositors as Purchasers. The Rules and Regulations of the Bank inferred that a borrower was required to remain a depositor until the mortgage was discharged. From April 1921, this requirement was incorporated in the Mortgage Deed.

Miscellaneous Charges. From time-to-time the question of making charges for various services came under consideration. In April 1921 the House Purchase Sub-Committee recommended that the Manager be authorised to charge a fee of 10/6d for a copy of a valuation, and a similar fee for the inspection of Deeds.

The HP Sub-Committee's meeting on April 18th 1921 also made decisions regarding:

- Short Lease Properties (the period of advances on leasehold property having less than 50 years to run to be limited to 10 years);

- Additional Security (the property in respect of which an advance is granted to be adequate security in itself);

- Shops and Dwellinghouses (as the Bank had no power to make advances in respect of shops, in the case of combined shop and house premises the valuation to be based on the property as a house only.

Second Mortgages etc. Following the General Committee's decision on May 23rd 1921 that a provision be incorporated in the Mortgage Deed so that a second mortgage cannot be entered into without the consent of the Bank, the Town Clerk wrote on June 17th 1921:

With reference to .... prohibiting second mortgages, I have to report that the form of Mortgage will shortly require to be re-printed, and your Committee may consider it desirable to defer any further amendment of the draft in the meantime.

At present, the original form is amended by hand in each case to provide for the Borrower remaining a depositor.

Further amendment may also be necessary to carry out the Committee's instructions to the Manager as to payment of Bank charges in case of Borrowers paying off voluntarily within twelve months.

I shall be glad to receive the Committee's instructions as to whether an immediate revision is desired.

In respect of the 'Second Mortgage' question, the Town Clerk appears to have sort specialist legal advice as his above report had a letter (dated June 9th 1921) attached, written by C Ashford Elton to F W Daniels, a member of the Bank's Committee. The Committee postponed indefinitely making a decision on the question of second mortgages.

Advances on Property in which the applicants do not intend to reside. With effect from December 1921, it became the Bank's policy that an applicant must state (on the application form) whether there is an intention to reside in the house in respect of which an advance is required; this policy aiming to prevent the Bank assisting in purchases made for speculation purposes. The HP Sub-Committee reconsidered this policy question at a meeting on March 19th 1923. The Sub-Committee reported that:

In view of the difficulty of obtaining possession in a good many instances, it has been the practice of the Bank to make advances to a borrower who has signified his intention of residing in the house, but is unable to obtain possession forthwith, and advances have also been made in certain cases on more than one house where it has been necessary for a borrower to buy additional property to obtain possession. These facilities, however, have not been extended to cases where the applicant does not intend to reside on the property in respect of which an advance is desired.

In this connection, an application was considered from the wife of a Mortgagor to the Bank for an advance on a house in addition to the one already acquired by the husband, and, in conjunction with the general question above referred to, the desirability was considered of making separate advances to husband and wife in respect of different properties.

The Sub-Committee were of the opinion that an extension of the Bank's facilities to cater for the above situation would be desirable both from the point of view of convenience to depositors and investment of Bank funds. This view was contrary to that of the Manager who had produced a report "On the granting of advances to applicants who (1) are not in a position, or (2) do not intend to reside in the property in question":

The position of Housing today makes it quite impossible in many cases for applicants to obtain possession of the house they are prepared to buy, although they would reside there if they could get possession. It is the practice of the Bank to grant advances in all such cases, and the Manager does not see how any other course can be followed.

In regard to cases where the applicant does not intend to reside in the property, the Manager pointed out that there:

is a question to be answered on each application form dealing with this particular point, and it is always answered to the effect that the applicant intends to so reside. If the applicant stated he did not intend to reside in the house the application would not be dealt with.

This question has been considered on other occasions, and it has always been the practice of the Committee to grant advances only to those depositors who resided or intended to reside in the house in question.

The Rules describe the objects of the Bank as being to "provide facilities to depositors to purchase or acquire a dwelling-house or dwelling-houses". From such wording it would appear that depositors could, if the Committee so wished, obtain advances on houses they had no intention of residing in. To allow this practice to be adopted would, however, be contrary to the expressed intention of the Corporation when the Bill was being examined before the House of Commons Committee. The opinion at that time (and since that time it has been confirmed) was that it would open the door to speculation in house purchasing, and would defeat the object the Corporation had in view, viz: to encourage people to become owners as well as tenants. It would not, in the Manager's opinion, be in the best interests of the Bank, to provide any avenue for speculation in this matter, and the Bank should not be a willing party to such a practice.

The Manager is not aware of any demand for such facilities.

In support of his report the Manager produced an Extract from the Minutes of Evidence before the Local Legislation Committee of the House of Commons on the Birmingham Corporation Bill.

The General Committee agreed with the view of the Manager and passed Resolution No 1379:

RESOLVED:- That it be an instruction that advances granted for House Purchase shall be confined to cases where it is the intention or desire of the applicant to reside on the property, and that where an application is made on respect of more than one house an advance shall be granted only where the purchase of an additional house or houses is necessary to obtain possession of one for occupation by the Purchaser, and on condition that the houses adjoin, and that the total number of houses involved in the transaction is limited to three.

Advances on premises outside the City On July 9th 1923, the General Committee, having been informed that Neville Chamberlain (then Minister of Health) had expressed his willingness to support the proposal:

RESOLVED (1472):- That, in the event of the promotion of a Birmingham Corporation Bill in the ensuing Session of Parliament, this Committee recommends that Clauses be included for obtaining the following additional powers for Bank purposes:

(a) To enable the Bank to make advances to Depositors for the purchase of houses outside the City.

(b) To establish Branch Banks in the areas of other Local Authorities with the consent of such Local Authorities.

However, the Town Clerk wrote on July 23rd 1923 that:

I have to report that the General Purposes Committee after careful consideration of all the proposals before them for inclusion in a Bill to be presented in the ensuing Parliamentary Session have concluded that such proposals are not of sufficient importance to justify the promotion of such a Bill.

In due course Power (a) was obtained when the 'Objects of the Bank' were amended in the 1930 Regulations to include "To advance money to any depositor desiring to purchase or acquire a dwelling house or dwelling houses in the City of Birmingham, and in any adjoining area with the consent of the local authority thereof, or any interest therein", and Power (b) was granted by the Birmingham (General Powers) Act, 1929.

Application to Underlease. At a meeting of the General Committee on October 15th 1923, it was agreed that an application by a mortgagor to underlease part of a mortgaged property be acceded to, as recommended by a report of the HP Sub-Committee:

An application has been received from Mr Pickering, a Mortgagor to the Bank, in respect of property No 67 Oval Road, Gravelly Hill, for permission to underlease 1,200 sq yards of land which is mortgaged to the Corporation in addition to an area of 470 sq yards of land on which the property stands, the latter area only being taken into consideration when the valuation of the property was made by Mr Wilde. It appears that if Mr Pickering were allowed to underlease this plot of 1,200 sq yards the Bank security would not be adversely affected; on the contrary it is probable that the security would be improved, as in the Underlease the name of the Corporation as Mortgagees would be included with that of Mr Pickering. Provision could be made in the Underlease that in the event of arrears of payments due under the Mortgage, ground rents should be paid to the Corporation. Your Sub-Committee accordingly see no objection to the proposal and recommend that the Town Clerk be authorised to take any necessary steps in the matter, and if necessary, affix the Corporate Seal to any required documents.

During this period of five years from September 1919 to September 1924, the General Committee reviewed regular reports and statistics showing the progress of the House Purchase Department. The progress that had been made included the successful introduction of systems and policies as over 2,000 advances were processed. This period of establishment and consolidation was about to be overtaken by more strenuous times as the Bank's participation in a scheme to sell Corporation houses through the Bank gathered momentum.