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The House Purchase Department in 1927
 
House Purchase
Department
 
Chapter 14 of J P Hilton's book Britain's First Municipal Savings Bank describes the development of the House Purchase Department from 1919 to 1927. That Chapter is reproduced here:
 
The development of the House Purchase Department has been phenomenal, and can be attributed to two factors, viz., the general publicity given since the war to the question of house ownership, and the inducements offered to citizens to purchase Municipal houses. Activities in this direction have been prominently brought before the public by such bodies as the Woodlands Housing Society, Weoley Hill Limited, the Bournville Works Housing Society, the Birmingham Mutual Housings Limited, and others, whilst many builders have contributed to this publicity by announcing easy terms of purchase.
 
The procedure followed by the Bank admits of applications being dealt with expeditiously, providing full information is given on the application form and the title to the property is not complicated. The first step to take, after having selected a house, is to fill up an application form, and forward it to the Bank, with a nominal valuation fee of ten shillings. It saves time if the applicant brings the form personally to the Head Office so that any further information required can be obtained at once. Applicants must be depositors in the Bank, and the house must be within the city. The Bank does not advance money to an existing mortgagor, nor undertake to advance further money upon a house already in mortgage, unless an undertaking is given to discharge the one mortgage before the other is created.
 
The next step taken is to have the house valued. As soon as the information in the case is complete the Bank instructs its valuer to inspect the house and furnish a report, together with his valuation. The valuer, who is not a regular official of the Corporation, but a member of the profession in private practice, makes his inspections once or twice a week according to the number of applications to be dealt with, but if an urgent valuation is specially required it can be arranged between the applicant and the valuer on terms. In such cases the valuation and report goes to the applicant direct, but it will be accepted by the Bank, if an application is subsequently made, without any further fee being charged.
 
On several occasions it has been suggested that the deposit of some given minimum amount should be an essential qualification before purchase facilities are allowed, but the housing situation has been, and still is, such as to call for few restrictions or limitations. Therefore, if a person is qualified as a depositor in the Bank, and is of full age, an advance towards the purchase will be granted if the security offered is satisfactory.
 
The question is sometimes asked whether an advance can be granted to a married woman. It has always been the practice to grant such advances, providing the husband was made a party to the mortgage, but the committee realise there are cases where such a requirement should be waived, and they have taken a sympathetic view and made other arrangements on being satisfied that such a course was desirable.
 
In the case of freehold property there is no question as to an advance being granted, providing the valuer's report is favourable, but in the case of leasehold property the lease must have fifty years unexpired to qualify for an advance. No distinction is made between pre-war or post-war houses, other than what is disclosed by the valuer's report.
 
Depositors have the option of arranging the period of the loan up to a maximum of twenty years, but it is advisable that applicants should arrange for repayments to be spread over twenty years in the first instance. The monthly repayment is governed by the amount and period of the loan, and therefore, a lower figure applies in the case of a twenty years' loan than would be the case in a short-period loan. By deciding on the longer period the depositor is in a better position, if for any reason he finds it difficult to meet his monthly obligations. There is complete freedom to pay off the loan whenever the depositor wishes to do so, and so long as the minimum monthly amount is met, a depositor may pay as much in excess as he likes.
 
In the early days, the amount which ought to be advanced on a post-war house presented a difficulty, owing to the uncertainty of values. For some time advances were granted up to 50 per cent of the building cost, ie the contract price of the house, with a limitation of Ģ800 in any single case; then the practice was varied by granting loans for ten years up to one-half of the contract price, for fifteen years up to one-third, and for twenty years up to one-fourth. But in December, 1921, the practice of basing the advance on the valuation was adopted, with a maximum of 80 per cent, and a limit of Ģ1,000 in respect of a single house. Advances on pre-war houses have always been governed by the valuation. Up to December, 1921, loans up to 80 per cent of the valuation, with a limit of Ģ600 on a single house, were made, but since that date the limit has been increased to Ģ1,000, the percentage remaining as before. The reason for fixing a limit at all was to encourage citizens who do not require large houses to become house-owners instead of remaining as tenants. In the view of the committee there are ample opportunities available in other directions for dealing with the larger and more expensive class of property.
 
It is not the desire of the Bank to assist speculation in house property; it is established for the purpose of helping citizens to buy houses to live in, or purchase those they reside in. Consequently, we require an assurance that where the applicant is not already residing in the house it is his intention to do so. There are cases where one, two or more houses have to be purchased to secure possession of one, the vendor being unwilling to sell otherwise. The Bank is prepared to assist in these special cases to the extent of three houses, but beyond that number we do not go. Reasons often exist for purchasing two houses adjoining each other, such as a man desiring to have a relative living next door to him, and in such cases it is the policy of the Bank to help.
 
Some applicants would like the Bank to advance money on business premises, but is not its function to do so. When applying for powers, the object of the Corporation in this matter was expressly stated, viz, to assist people to own their houses, and it was never intended to use the funds of the Bank to assist in the purchase of business premises. Where the property consists of a house and shop the Bank will advance up to 80 per cent of the value of the premises as a dwelling-house.
 
The rate of interest charged on mortgages was fixed at the commencement of the Bank at one penny per pound per month on the balance outstanding, but it became necessary to increase this rate in June, 1920, to 1žd per pound per month. The committee were reluctant to raise the figure but money values, and the practice of other lending organisations, indicated such a course to be necessary. As soon as it was possible to reduce the rate the committee made the reduction, and accordingly in May, 1922, brought down the rate to one penny per pound per month again, at which figure it remains. Feeling that those depositors who had entered into mortgages at the higher rate were at a disadvantage, through no fault of their own, the committee decided to allow them the benefit of the reduced rate and permit them to pay such lower rate as from May, 1922. We could have insisted on our "pound of flesh" as many organisations did, but a sense of fair dealing prompted the Bank to make this concession.
 
The Town Clerk is the solicitor to the Bank and prepares the mortgage without any charge to the depositor; he also satisfies himself that the title to the property is a good one and such as can be accepted. Depositors can rest content that once the Town Clerk is satisfied with it they have something sound as their possession. The conveyance of the property, and any other legal work which may be necessary, must be undertaken by a solicitor engaged by the depositor.
 
Immediately the depositor accepts the offer of an advance by the Bank, arrangements are made to cover the property against fire, and as soon as the mortgage is completed the policy is taken out. During the whole period of the loan the property is kept insured against fire. The premiums on the policy are paid by the Bank in the first instance, and subsequently charged to the depositor's account. This practice saves the trouble of dealing with annual premiums and having to produce receipts to the Bank. Unless the title deeds fix the amount of insurance, it is the practice of the Bank to allow depositors to determine the amount, so long as it covers the advance, but if the matter is left to the Bank the insurance will be affected in a sum equal to the amount of the loan. The insurance policy can be taken out to suit the wishes of the depositor in various ways as follows:
 
Under Scheme A the rate is 1s. 6d. per cent and covers damage by fire in respect of buildings of private dwelling-houses constructed of brick, stone or concrete, and roofed with slates, tiles, metal, concrete or asphalte, and the following contingencies are covered:
    Fire (whether resulting from explosion or otherwise) not occasioned by or happening through:
                (a) Its own spontaneous fermentation or heating or its undergoing any process involving the application of heat,
                (b) Earthquake, subterranean fire, riot, civil commotion, foreign enemy, military or usurped power, rebellion or insurrection:
    Lightning;
    Thunderbolt;
    Explosion of boilers used for domestic purposes only;
    Explosion, in a building not being part of any gas works, of gas used for domestic purposes or used for lighting or heating the building.
 
Under Scheme B, the contents of a house may be insured at the rate of 2/- per cent against the same risks as Scheme A.
 
Under Scheme C, the rate is 1s. 9d. per cent (subject to the insurance being for the full value of the house) and covers the risk mentioned in Scheme A, plus the following contingencies:
    Loss of rent (limited to 10 per cent of the sum insured in respect of rent), aircraft, burglary, housebreaking, property owners' liability.
 
Under Scheme D, the contents of a house may be insured at the rate of 5s. per cent (subject to the full value being insured and with a minimum premium of 7s. 6d. per cent) to cover the following risks:
    Fire, explosion, lightning, thunderbolt, burglary, housebreaking, larceny, civil commotion, theft, aircraft, earthquake, breakage of mirrors, servants' goods, labour
         disturbances, accidents to servants, liability to public riot, strikes, military or usurped power (other than foreign enemy).
    Loss of rent (limited to 10 per cent of the sum insured)
    Cash in house (limited to 5 per cent of the sum insured - not exceeding Ģ25)
    Storm (limited to 5 per cent of the sum insured)
    Tempest (limited to 5 per cent of the sum insured)
    Flood (limited to 5 per cent of the sum insured)
    Damage to buildings by burglars, compensation for death of insured, bursting or overflowing of water apparatus or pipes.
 
The desire, expressed by many depositors, for some scheme whereby hardship or embarrassment may be avoided in the case of death of the depositor, has been met by arranging schemes of life assurance.
 
One scheme provides for a policy being taken out in a sum not less than the amount of the mortgage, the premiums being paid yearly, half-yearly or quarterly. The rate is dependent on the age of the depositor, and the amount of the assurance, but taking the case of a depositor, whose age would be thirty-five next birthday, and the amount of the assurance as Ģ400, the quarterly premium would be Ģ2 2s 0d. In the event of death of the depositor, during the period of the loan, Ģ400 would be paid to the legal representative. If the depositor should survive and the loan be repaid, the assurance may be continued or other arrangements made.
 
Another scheme is a reducible assurance, whereby the depositor can provide against the risk of death by taking out a series of policies equal to, or in excess of, the mortgage and covering a period of twenty years. For example:
Take a mortgage of Ģ400 and the age of the depositor to be thirty-five next birthday. Four policies of Ģ100 each would be issued, the first expiring in five years, the second in ten years, the third in fifteen years, and the fourth in twenty years.
The premium for the first 5 years would be Ģ8 8s. 0d. per annum.
The premium for the next 5 years would be Ģ6 6s. 0d. per annum.
The premium for the next 5 years would be Ģ4 4s. 0d. per annum.
The premium for the last 5 years would be Ģ2 2s. 0d. per annum.
As each policy is surrendered important returns are made, as follows:
At the end of the fifth year ….....………..Ģ4 16 0
At the end of the tenth year ……...……. Ģ10 4 0
At the end of the fifteenth year …..……. Ģ16 0 0
At the end of the twentieth year …..…... Ģ22 2 0
 
Total returns …………….........………… Ģ53 2 0
 
Thus it works out that for an average payment of Ģ2 11s. 10d. per annum, or 1s. 0d. per week, the depositor can cover against the risk of leaving those dependent on him in an embarrassed position.
 
Another scheme is to effect a reducible assurance on lines similar to the above, but with no surrender values. This has the effect of lowering the annual premium.
Taking the case of a depositor whose age next birthday will be twenty-five, the annual premium for an assurance of Ģ400, reducible by Ģ100 at the end of each five years, would be as follows:
First five years …...….. Ģ3 17 0 covering the sum of Ģ400
Second five years .….. Ģ2 18 0 covering the sum of Ģ300
Third five years …....… Ģ1 19 0 covering the sum of Ģ200
Fourth five years ..…..… Ģ1 0 0 covering the sum of Ģ100
 
Under the regulations, ground rent receipts in respect of leasehold property must be produced to the Bank within thirty days from the date due, failing which the Bank may pay the rent and charge the depositor accordingly. The production of receipts has been a source of trouble and expense to mortgagors, and no less troublesome and expensive to the Bank.
 
In the case of leasehold Municipal houses purchased with assistance from the Bank, these receipts had to be made out by the Estates Department half-yearly, and produced to the Bank. This procedure was laborious, and called for simplification. Arrangements have now been made so as to reduce clerical labour to a minimum, by charging the ground rent to the account of the borrower and collecting the amount with the next monthly repayment. The Estates Department render a detailed account of ground rents due and one payment by the Bank and one receipt by the Estates Department covers the position.
 
Finding the benefit of the arrangement in respect of Municipal houses, the Bank took steps to make a similar arrangement in the case of non-municipal leasehold houses. This could only be done with the sanction of the depositors, but no difficulty was experienced when the matter was fully explained. To-day, there are only one or two cases where the old arrangement is in force.
 
An important action was taken by the City Council in October, 1922, when it was decided to provide facilities whereby the tenants of Municipal houses might buy their houses. The Council directed the Bank and Estates Committees to prepare a scheme for giving effect to that decision.
 
Many conferences took place, resulting in the presentation of a joint report to the Council in January, 1923. The Council authorised the sale of houses erected by the Council, and sanctioned the use of the money received from such sales for the erection of additional houses; and instructed the Bank and Estates Committees to formulate and bring into operation a scheme for utilising the existing machinery of the Bank in connection therewith. The Public Works and Town Planning Committee, who are charged with the duty of building Municipal houses, fix the sale price, and hand over the houses to the Estates Committee for disposal either by way of tenancy or sale. The Estates Committee select the purchasers and introduce them to the Bank, and providing the Bank approve the selection, the usual procedure for effecting a mortgage is followed.
 
When this scheme was inaugurated the Bank advanced up to 80 per cent of the value of the house, as ascertained by the valuer, the purchaser finding the difference between the loan and the purchase price. Conferences took place with a view to further popularising the purchase of Municipal houses, and as a result a scheme was adopted whereby houses could be purchased on payment of a deposit of Ģ60 in the case of a parlour-type house, or Ģ50 in the case of a non-parlour type house, the Bank being responsible for the advance up to 80 per cent of the valuation, and the Finance Committee being responsible for the excess amount necessary to complete the purchase. This concession to would-be purchasers gave an impetus to the sales.
 
In March, 1925, the Lord Mayor (Alderman Percival Bower) took up the question of offering still further inducements in respect of the sale of Municipal houses. He convened meetings of the committees interested, pressed for more favourable terms, and urged that something should be done to encourage sitting tenants to buy their houses. The result of these meetings led to the fixing of lower deposits - in the case of parlour-type houses Ģ25, and in the case of non-parlour type houses Ģ20 - and a special arrangement for sitting tenants to become owners on payment of one per cent of the purchase price.
 
The low deposit terms have resulted in many citizens becoming owner-occupiers instead of tenants, as the following numbers indicate:
Number of mortgages effected up to 31st March 1927 …………….. 2,422
Amount advanced up to 31st March 1927 ………...............…….. Ģ790,647
 
It will be realised that amongst so many, there are some who find it difficult to keep up their repayments, but in few cases has it been necessary to take serious action. Cases of embarrassment can generally be met by a little leniency, and the Bank Committee have always dealt in a sympathetic manner with genuine cases brought to their notice.
 
Taking the house purchase business as a whole, mortgages have been arranged in 6,767 cases representing Ģ2,232,480, in the short space of seven years and seven months. That is no mean achievement; it is a testimony to the need of the Bank in the city, and, again, a tribute to the confidence of the citizens in the Bank.
 
The psychological effect of the creation of owner-occupiers in the city is important. It lifts the individual out of the class who are dependent on the whim or fancy of a landlord. He will cease to pay rent year after year and never own a brick in his house; he will realise it is a wiser policy to be his own landlord; he will learn to become independent. House-ownership, moreover, gives a man a direct interest in the affairs of his city, and anything which tends to create a keener interest in the affairs of our city should be welcomed.
 
Many builders have so much confidence in the Bank that they readily advance money on second mortgage to an applicant who finds himself short of the necessary amount required as a deposit. They know the Bank is part of the Corporation's activities and that is a sufficient safeguard.
 
The following analysis of the 5,380 mortgages in force at the 31st March, 1927, is interesting:
Balances not exceeding Ģ100 …………………………..…….. 407
Balances over Ģ100 but not exceeding Ģ200 …….…..……… 884
Balances over Ģ200 but not exceeding Ģ300 ………....…… 1,399
Balances over Ģ300 but not exceeding Ģ400 ……...….…… 1,767
Balances over Ģ400 but not exceeding Ģ500 ……...………… 782
Balances over Ģ500 but not exceeding Ģ600 ……….………… 79
Balances over Ģ600 but not exceeding Ģ750 ………...……..… 40
Balances over Ģ750 but not exceeding Ģ1,000 …………..…… 22
 
Total ……………………………………………......………….. 5,380
 
It is sometimes said by people who know nothing about the matter that the Bank is not catering for the working-man. Whatever is meant by the term "working-man", the following classification of occupations of the 6,767 depositors who have bought houses through the Bank since its establishment and up to the 31st March, 1927, speaks for itself:
 
     [1] Engineers, Fitters, Chainmakers, Turners, Millwrights, Mechanics, Toolmakers, Diesinkers, Blacksmiths,
          Machinists, Lamp Makers, Tinsmiths, Coopers, Gunsmiths ……………………………………....………………...….. 805
 
     [2] Brassworkers, Steel Workers, Iron Workers, Metal Workers, Tinplate Workers, Rubber Workers,
          Electrical Workers, Leather Workers, Tube Workers, Gas Workers, Glass Workers, Cycle Workers,
         Japanners, Polishers, General Workers ……………………...………………………………………...……………...….. 506
 
     [3] Builders, Contractors, Bricklayers, Stonemasons, Slaters, Plasterers, Joiners, Carpenters, Cabinetmakers,
          French Polishers, Painters, Decorators, Sign Writers, Upholsterers, Undertakers, Plumbers ………….………...….. 417
 
     [4] Tailors, Saddlers, Shoemakers ……….......………………………………………...…………………………………....…. 62
 
     [5] Printers, Compositors, Bookbinders, Lithographers, Publishers, Engravers, Designers, Artists, Photographers ..… 169
 
     [6] Bakers, Drapers, Grocers, Dairymen, Fruiterers, Florists, Fishmongers, Greengrocers, Butchers
          Hairdressers, and other Shopkeepers ……………………………......…………………………………….……………… 235
 
     [7] Employees of Railways and Tramways Undertakings ……………..........…………………………..……………………. 190
 
     [8] Postal Employees, and Employees of Government Departments ……………………………………........…………….. 216
 
     [9] Employees of Local Authorities and Public Officers ……………………………………………………............…………. 191
 
     [10] Chauffeurs, Gardeners, Porters, Laundrymen, Nurserymen, Horsekeepers, Publicans,
             Boarding House Keepers, Window Cleaners, Caterers, and other Domestic Employees …………..……………… 120
 
     [11] Insurance Agents, Officials, and Other Agents …………………………………………………………...........………… 120
 
     [12] Chocolate Workers …………………………………………………………………………………………..............………52
 
     [13] School Teachers, Nurses, Milliners, Dressmakers, Costumiers, Modellers ………………………….........………….. 295
 
     [14] Clerks, Bookkeepers, Cashiers, Draughtsmen, Travellers, Salesmen, Buyers, Storekeepers, Shop Assistants,
             Warehousemen, Collectors ………………......…………………………………………………………………………..1,473
 
     [15] Jewellers, Watchmakers, Silversmiths, Goldsmiths, Musicians ……………………………………………........…....… 166
 
     [16] Managers, Foremen, Superintendents, Inspectors, Secretaries ……………………...………………………….......…. 568
 
     [17] Architects, Auctioneers, Solicitors, Barristers, Doctors, Clergymen, Ministers, Civil Engineers,
            Chemists, Dentists, Surveyors, Stockbrokers, Professors, Lecturers, Journalists, Chiropodists, Opticians ….…...… 230
 
     [18] Merchants, Manufacturers, Directors, Dealers, Factors …………………….……………………………............………. 160
 
     [19] Married Women, Widows, and Spinsters, not classified ……………………............….………………………………… 683
 
     [20] Unclassified Males …………………………………………………………….................………………..………………… 109
 
The reason why Nos. 19 and 20 are not more particularly classified is because the Bank, in its early days, did not ask for information as to the occupation of an applicant, but it is reasonable to suppose the great majority were workers.
 
Progressive totals of Advances at the end of each Financial Year (Ģ):
 
March 31st 1920 (Seven Months only) …………..…..…….. 39,873
March 31st 1921 ………………..………………………….. 264,088
March 31st 1922 …………………..……………………….. 349,453
March 31st 1923 …………………..……………………….. 433,248
March 31st 1924 …………………..……………………….. 622,395
March 31st 1925 …………………..……………………….. 932,349
March 31st 1926 ………………….…………..………….. 1,558,753
March 31st 1927 ……………….…………….….……….. 2,232,480
 
The Council took a further step towards easing the housing problem when they ordered a scheme to be prepared for advancing money by way of mortgage to persons willing to build houses. The Bank and the Estates Committees presented a joint report in which they pointed out that the Corporation possessed the necessary powers under Section 7 of the Birmingham Corporation Act, 1919, to advance money by way of mortgage to persons to build houses, but the Bank, as constituted under Section 12, were limited to advancing money on mortgage to enable persons to purchase houses already erected.
 
It was ultimately decided that the Finance Committee should advance money on progressive mortgage to persons to build houses within the city on freehold land, or on land leased for the purpose by the Corporation. At a later stage it was arranged that similar assistance should be granted to persons erecting houses on land leased to them by parties other than the Corporation. A scheme was adopted which provides for these applications being dealt with by the Public Works and Town Planning Committee. The Finance Committee advance the money on certificates issued from time to time by the city surveyor, and the Bank acts for the city treasurer in collecting the repayments, and arranges the transfer to a Bank mortgage as soon as the final payment under the progressive mortgage has been made, unless the loan is entirely paid off. Up to the 31st March, 1927, the Bank had dealt with seventy of these cases.