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HOUSE PURCHASE SUB-COMMITTEE: October 12th 1931
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SECOND MORTGAGES
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As a result of a question raised by Alderman James at a recent meeting of the Committee, I have conducted an exhaustive survey of the deeds of extant mortgages and find that there are 550 cases in which second mortgages are in operation as hereunder:
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With private individuals |
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298 |
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With Builders: |
(Dare & Son) |
97 |
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(H M Grant Ltd) |
115 |
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(Others) |
28 |
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With Banks, etc |
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14 |
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550 |
In 63 of the above cases second mortgages were entered into after the Bank’s mortgage had been created.
We have had practically no trouble in arranging with the second mortgagees who are builders to discharge the Bank’s mortgage, and in some cases an application has come forward at a later stage for an advance on the house to another party under the original conditions, and such advances have been granted. We have only had trouble in one or two isolated cases where the second mortgagees have been a little difficult to deal with and have gone so far as to decline to take the Bank’s mortgage over, with the result that we have had to sell. This is a mistaken action on the part of the second mortgagee because he stands to lose the value of his outstanding loan.
If the Bank altered its policy and declined to grant advances in any cases which would be subject to a second mortgage, I am afraid we should lose considerable business because it is frequently found impossible for the purchaser to acquire the house with the Bank’s advance only. The Bank’s advance is governed by the valuation, and as this latter is always on a conservative basis it follows that in many instances the purchaser is called upon for more money than he can find out of his own resources, and therefore he has recourse to a second mortgage. Very frequently Solicitors in the town are ready and willing to find the additional money by way of second mortgage in order to complete the purchase. There is another type of case which is not infrequently met with, viz, where an applicant is anxious not to disturb his investments, which he would have to do if he had to personally find the extra money required to complete the purchase.
With the exception of the “Ideal” I am not aware of any building society which incorporates in the mortgage a clause providing for the discharge of the mortgage in the event of the mortgagor entering into a second mortgage, and from a point of view of securing business I think such a clause would be disadvantageous.
We have always kept a very tight hold on the position in respect of our mortgages, and the practice of the Committee having before them cases where mortgagors are three months in arrears very largely safeguards the position, and I do not think it would be in the interests of the Bank to vary our present practices. Having regard to the times through which we are passing, I consider the position of our House Purchase Department to very satisfactory and such as one need not be unduly concerned about. It is inevitable, with such a large number of mortgagors, that we should have trouble in getting repayments in accordance with the term of the mortgage, but the vast majority of these cases do not concern people who have effected second mortgages.
The Members of the Committee will realise that the Bank depends for a good portion of its income on effecting mortgages on houses, and I do not think we should take any step which would have the effect of making our scheme less attractive than it is. The avenues of investment of our funds so as to give a yield of 5 per cent are practically closed except in respect of mortgages on houses, and this makes it all the more desirable that we should be able to effect new mortgages as we have done in the past, so long as the amount outstanding does not exceed 25 per cent of our available funds. At the present time the percentage of money outstanding on mortgages represents less than 15 per cent of our total funds.
October 6th 1931.