HOUSE PURCHASE DEPARTMENT:
ADMINISTRATION & POLICY
(continued)
Bank Committee: February 19th 1934 (continued)
(1) That schemes be adopted in connection with the development of housing estates whereby advances may be granted up to a maximum of 90% of the purchase price (including legal and other charges upon the property), subject, however,
(i) to a satisfactory report from the Bank's Valuer, as to the nature and price of the property in relation to market value, and
(ii) upon the understanding that the builder or person in question deposits satisfactory security to cover the difference between 80% of the valuation of the house and the amount of the loan.
In this connection the Town Clerk has drawn attention to the provisions of Sub-Section 7 (3) (a) of the Birmingham Corporation Act, 1919, to the effect that the Corporation shall be satisfied that the value of the premises is sufficient and that the title thereto is one which an ordinary Mortgagee would be willing to accept; and it would therefore be for the Valuer to keep this requirement in mind in considering the suitability of the property.
(2)
That loans be granted in approved cases up to a maximum of 25 years.
(3) That as an alternative to the present method of making repayments of the loan, a system of payment by equated monthly instalments be arranged. The latter system would enable the borrower to make smaller payments than at present in the earlier years of the mortgage, although the total amount repaid would ultimately be greater than under the existing system.
(4) That arrangements be made with a reliable Assurance Company whereby occupier- borrowers may combine the loan with a life insurance policy so that in the event of the death of the borrower during the period of the loan the balance outstanding under the mortgage would be discharged.
(5) That in regard to individual applications for advances (outside the above-mentioned scheme) the principle be adopted of advancing up to 90% of the valuation of the property in approved cases and that the facilities referred to in Nos 2, 3, and 4 above indicated be also applicable to such cases.
In the event of any applications by existing Mortgagors for the extended period of 25 years to apply to their loans, it is felt that this should be permitted upon payment of any costs involved in making such arrangements.
It is possible that the scheme above outlined may require some minor amendments to the regulations and in case such should be necessary your Committee are recommended to authorise the Town Clerk and General Manager to take the necessary steps to obtain any required sanctions.
In the event of the proposals being adopted it is proposed to take steps to advertise the new scheme of House Purchase by the issue of suitable literature.
5055 A question was raised by Councillor Yates as to the possibility of the scheme being extended to enable an advance to be made up to 95% of the purchase price, on the understanding that the builder would take over any property where default was made, a practice being followed by a certain building society. It was pointed out, however, that the Regulations provided for any such case being dealt with as a special case and the point could be met by a special minute of the Committee on any such case arising.
5056 RESOLVED:- That the following proposals be approved for the extension of existing facilities for house purchase, and the Town Clerk and General Manager instructed to take steps accordingly, and authorised to obtain any required sanctions:
(a) That authority be and is hereby given for schemes to be adopted in connection with the development of housing estates whereby advances may be granted to House Purchasers up to a maximum of 90% of the purchase price (including legal and other charges upon the property), subject, however, to the following provisions:
(i) A satisfactory report by the Bank's Valuer as to the nature of and price asked for the property in relation to market value and,
(ii) That the builders or persons in question deposit satisfactory security to cover the difference between 80% of the valuation of the house and the amount of the loan.
(b) That loans be granted in approved cases up to a maximum period of 25 years.
(c) That, as an alternative to the present method of making repayments of the loan, a system of payment by equated monthly instalments arranged.
(d) That arrangements be made with a reliable Assurance Company whereby occupier-borrowers may combine the loan with a life insurance policy so that in the event of the death of the borrower during a period of the loan the balance outstanding under the mortgage would be discharged.
(e) That, in regard to individual applications for advances (outside the above-mentioned schemes) the principle be adopted of advancing 90% of the valuation of the property in approved cases, and that the facilities referred to in paragraphs (b) (c) and (d) above-mentioned be also applicable to such cases.
(f) That application by existing Mortgagors for the loan period under the Mortgages to be extended to 25 years be granted in approved cases upon payment of any costs involved in making such arrangements.
5057 RESOLVED:- That the foregoing report of the House Purchase Sub-Committee be approved.
5058 RESOLVED:- That the preparation of a suitable statement for publication in the local newspapers regarding the extension of House Purchase facilities be left with the Chairman and Councillor Cooper, together with the Town Clerk and General Manager with authority to take such action as they may consider desirable.
Bank Committee: March 19th 1934
On Minutes Nos 5056 and 5058 (Publication of Statement re Extension of House Purchase Facilities), the Committee considered the following proposed statement to the Press, which had been agreed by the Town Clerk and General Manager:
Important extensions of facilities for house purchase were announced by the Birmingham Municipal Bank at their meeting this morning which should prove attractive to intending purchasers.
Hitherto the method of repayment of a loan by equal instalments of the principal, spread over the period of the loan, plus a monthly adjustment of the interest charge at the rate of one penny per pound on the balance outstanding, has been in force, but in response to representations for an equated system of repayments, the Bank Committee have decided to offer applicants the choice of the two systems. It will therefore be at the option of an applicant to have a loan subject to a fixed payment of principal with a reducing monthly interest charge, or one that is subject to fixed monthly payments representing both principal and interest.
The period for repayment of the loan has hitherto been at the option of the borrower up to a maximum of 20 years. This may now be arranged up to 25 years in approved cases.
In respect of the development of housing estates by builders and others, the Bank will be prepared to lend up to 90% of the purchase price in approved cases, subject to being satisfied as to the nature and price of the house and receiving from those responsible for the erection and sale of the houses a deposit of collateral security to cover the difference between the amount borrowed and the amount which the Bank would normally advance. This collateral security may take the form of marketable security; or the deposit of cash; or a guarantee policy through an Insurance Company, the premium on such policy being paid by the Borrower.
As regards advances on houses which do not form part of a housing estate development, the Bank is still prepared to lend to approved applicants up to 90% of the valuation of each house.
The extended facilities now available for obtaining advances through the Bank will, no doubt, be welcomed by many intending purchasers who are not in a position to find a large sum of money from their own resources. But, at the same time, the arrangement hitherto existing will remain available for those who prefer the system of a reducing monthly interest charge, this system having undoubtedly proved of great advantage to the twelve thousand persons who have up to the present date arranged mortgages with the Bank.
5078 RESOLVED:- That the foregoing statement be approved for publication and that Minutes Nos 5056 and 5058 be discharged.
5097 The Committee were informed that at the meeting of the House Purchase Sub-Committee held on Monday, the 12th March, 1934, consideration was given to the question of mortgages effected by members of the staff with Building Societies and others.
After carefully considering the matter, the Sub-Committee had come to the conclusion that it was desirable to lay down certain conditions which should govern future appointments and also regulate the actions of the existing staff.
The Sub-Committee felt that the nature of the duties which have to be undertaken by members of the Bank staff and the responsibilities involved in connection with the following requirements:
(1) That the Staff should be informed that any officer who contemplates entering into a mortgage for the purchase of his house, should arrange for such mortgage to be with the Bank unless there are special circumstances which would prevent the Bank arranging a mortgage.
(2) That those members of the Staff who have already entered mortgages with building societies and others, be requested to arrange for the transfer of such mortgages to the Bank, except in those cases where the house is situate outside an area in which the Bank is operating.
(3) That in all future appointments it should be made a condition of service that officers are not to contract any debts of an unusual character nor incur any large capital commitments without reporting the facts to the General Manager and obtaining his consent.
(4) That the present Staff be informed of the conditions applicable to new appointments and told that they will be expected to observe the same conditions.
The Committee were further informed that, arising out of consideration of the mortgages already entered into by certain members of the staff, the House Purchase Sub-Committee decided in the cases of Messrs Harling and Hodgkins that it would be desirable for them to be interviewed, and they accordingly requested the Chairman of the General Committee, Alderman Barrow and Councillor Cooper, with the General Manager to interview the two above-named officers.
After discussion it was:
5098 RESOLVED:- That this Committee are in full agreement with the views expressed by the House Purchase Sub-Committee, as above indicated and confirm the course of action decided upon by the Sub-Committee in regard thereto.
Bank Committee: April 23rd 1934
5120 The following report of the House Purchase Sub-Committee was presented:
Sale of Property: 64, Beauchamp Road, King's Heath.
Arrangements have been made for the sale of this property by public auction, as authorised by Minute No 4991, and the reserve has been fixed at £260.
Extension of House Purchase Facilities.
With reference to the proposal that mortgagors should be enabled to effect a life assurance in conjunction with the mortgage loan, the General Manager has submitted to your Sub-Committee particulars of assurance schemes obtained from two companies.
It is intended to include in a booklet which is in course of preparation reference to suitable assurance companies. In thus connection your Sub-Committee have instructed the General Manager to submit particulars of a scheme for a combined endowment assurance and house purchase advance, covering periods of 20 or 25 years, whereby interest only on the loan would be paid each month plus a monthly premium in respect of the endowment policy. Under such scheme the policy would ensure that the whole amount outstanding would be paid at the expiration of the period of the loan or on the death of the insured prior to the maturity of the policy.
The Town Clerk has been asked to consider whether such a scheme would necessitate amendment of the Regulations.
With reference to the paragraph in the foregoing report relating to the question of facilities being granted for Life or Endowment Assurances in conjunction with loans for house purchase, the Sub-Committee considered the following report of the General Manager containing particulars of the different types of schemes:
General Manager's Report on Combined Advances and Life Assurance.
As directed by the House Purchase Sub-Committee, I have given further consideration to the question of schemes for combining house purchase advances with life assurance, and set forth my observations thereon:
One scheme provided for the mortgagor taking out a life policy for the full amount and full period of an advance, and for the payment of a single premium on the policy which could either be paid at once by the applicant or added to the amount of the advance. Under this scheme the policy would be assigned to the Bank, and in the event of the death of the borrower during the period of the loan, the Insurance Company would pay to the Bank the full amount necessary to discharge the mortgage. Such a scheme enables a borrower to ensure that his dependents will not be embarrassed so far as the mortgage is concerned in the event of his death.
The Royal
Insurance Co Ltd and the Phoenix Assurance Co Ltd were asked to submit rates for such assurances in two ways, so as to meet the alternative
methods in force for making repayments of the advances. The most favourable rates submitted based on a loan of £100 for 20 years,
and at age 30 next birthday, are those of the Phoenix Assurance Co Ltd, as follows:
|
|
Fixed monthly payment of Principal
with reducing Interest charge |
Equated monthly payments of Principal and Interest |
|
Premium on life policy |
£8. 4. 0. |
£9. 7. 0. |
|
Normal
payment of principal and interest |
£9. 17. 9. per annum |
£8. 0. 0. per annum |
|
Additional payment if premium added to loan |
£0.
16. 3. per annum |
£0. 14. 11. per annum |
It will thus be seen that for an additional payment of 16/3 or 14/11, according to the method adopted, the borrower can cover the risk referred to.
Another scheme provided for the mortgage taking out an endowment policy for the full amount and full period of the advance, and for the monthly payment of the premium on the policy, plus interest on the advance. No repayment of the advance would be made during the period covered by the mortgage, but at the expiration of the period when the policy would fall due, or on the death of the borrower within the period, the Insurance Company would pay to the Bank the full amount of the advance. Should the borrower desire to discharge the mortgage before the expiration of the period for which it was granted the surrender value of the policy would be paid to the Bank, and would go towards the amount required to effect the discharge. The policy would be assigned to the Bank.
The rates quoted for this class of assurance are:
£4. 1. 2. per annum for a 20 years
loan of £100.
£3. 1. 6. per annum for a 25 years loan of £100.
The position so far as the borrower is concerned, based on a loan of £100 for 20 years, and at age 30 next birthday, would be as follows:
|
|
Per Annum |
|
Interest payment |
£5. 0. 0. |
|
Premium on endowment
policy |
£4. 1. 2. |
|
Total |
£9. 1. 2. |
as against £9. 17. 9. under our usual system of repayments without assurance, or £8. 0. 0. under the equated system of repayments without assurance.
I am of opinion that both schemes should be adopted, and made available for borrowers at their option.
With regard to the question of applicants being allowed to select their own Insurance Company, I do
not think such an arrangement would be satisfactory, because the Bank would be asked for figures to enable the applicant to decide
which scheme to adopt, and would have to ascertain the rates from a certain Company. To obtain such rates and then allow applicants
to use the figures to secure the same terms from another Company, does not appear to me to be fair. Therefore, I recommend arrangements
being made with the Company only to deal with this particular type of business.
(April 20th 1934)
The Town Clerk advised that there was nothing in the regulations to prevent the Assurance schemes adopted by mortgagors if desired.
Arising out of the discussion which followed Councillor Yates advocated the desirability of obtaining expert advice from a leading firm of Insurance Brokers as to the most desirable Assurance schemes to be recommended to mortgagors, and it was:
5125 RESOLVED:- That the suggestion of Councillor Yates above referred to be approved, and that a special Sub-Committee be appointed, consisting of the Chairman and Councillors Cooper and Yates, in consultation with the Town Clerk and General Manager, to take any required steps to secure expert advice upon the question, and to agree upon the particulars to be included in the proposed pamphlet regarding the extended facilities for house purchase.
Bank Committee: May 18th 1934
5153 The following report of the House Purchase Sub-Committee was presented:
Report on Combined Life and Endowment Assurance with House Purchase.
1. The Special Sub-Committee consisting of Alderman Gelling and Councillors Cooper and Yates, appointed by the Bank Committee to consider and decide upon the most suitable company or companies to collaborate with the Bank in house purchase schemes, enlisted the services of Messrs Sedgwick Collins & Co Ltd, Insurance Brokers, who have conducted an exhaustive investigation into the rates and conditions afforded by ten leading Assurance Companies for various forms of assurance and reported at length thereon. Conferences have taken place between the Brokers and the Special Sub-Committee, and very full and careful consideration has been given to the whole matter.
2. The investigations prove that no one office is the best for all the types of assurance, and the Special Committee, therefore, selected three companies for three distinct classes of assurance, whose terms and conditions are the most favourable.
3. For decreasing term assurance where the loan is repaid by
equated payments of principal and interest the Sun Life Assurance Society has been selected. This type of life assurance means the
payment of a single premium which can be added to the loan, and provides that the balance outstanding shall be paid in the event of
the death of the mortgagor before the expiration of the loan. A single premium based on a loan of £100 would be as follows:
|
|
20
year loan |
25 year loan |
|
At age 30 |
£8. 15. 4. |
£10. 7. 8. |
|
At age 40 |
£11. 15. 6. |
£15. 3. 6. |