CHAPTER X. BUILDING SOCIETIES.
THE main object of a Building Society is to aid a man to become proprietor of his own dwelling. This can be accomplished by means of the society in two different ways:- 1, by depositing with the society periodical money savings until, with the interest allowed, enough has been accumu- lated to buy a house; 2, by borrowing from the society a sufficient sum to purchase a house and repaying the loan, with interest, by instal- ments spread over a term of years. A person desiring to become a depositor must qualify for membership of the society by paying an entrance fee of; say, 2s. 6d. He then takes up a share and, by paying periodical instalments according to the tables, he becomes entitled at the end of the appointed time to receive £100.
The same applies proportionately to a half share of £50 or to a quarter share of £25. For example, as regards the whole share, a person paying 13s. a month regularly to the society is entitled, at the end of ten years, to be repaid a lump sum of £100, and any bonus added thereto which the profits of the society may afford. If the term be fifteen years, then, to secure £100, he will have to pay only 7s. 7d. every month, and if twenty-one years, then a monthly payment of 4s. 7d. The terms vary in different societies, but those quoted have been adopted by an exist- ing institution of repute. If the term of ten years is selected, the depositor will have saved and paid to the society (with added interest) £78 in all; if the term of fifteen years is chosen he will have paid £68 5s. in all; and if twenty-one years be adopted, £57 15s. In either case, at the end of the term he has selected, the depositor will be paid back £100. Thus any one taking a share for £100, and keeping up the instalments for twenty-one years, will in the end have paid only £57 15s. for it — the difference being met by the interest paid by borrowers from the society. The following table shows particulars of other terms and the monthly subscription payable:-
———————————————————————- | Term | Monthly Sub- | Term | Monthly Sub- | | of |scription for a| of |scription for a| |Years.| £100 share. |Years.| £100 share. | |———|———————-|———|———————-| | | £ s. d. | | £ s. d. | | 3 | 2 12 10 | 13 | 0 9 1 | | 4 | 1 18 8 | 14 | 0 8 4 | | 5 | 1 10 2 | 15 | 0 7 7 | | 6 | 1 4 6 | 16 | 0 6 11 | | 7 | 1 0 6 | 17 | 0 6 4 | | 8 | 0 17 6 | 18 | 0 5 10 | | 9 | 0 15 2 | 19 | 0 5 4 | | 10 | 0 13 0 | 20 | 0 5 0 | | 11 | 0 11 8 | 21 | 0 4 7 | | 12 | 0 10 6 | | | ———————————————————————-
After the first year a depositor may, if desirous, withdraw, on giving one month's notice, the full amount he has paid, with interest, to the date when the subscription ceases. This prevents the possibility of any loss arising to a depositor in the event of his being unable to keep up his instalments, or desiring from any cause to with- draw from the society. It may, however, in case of a loss of confidence, operate seriously against the society, by the sudden withdrawal of de- posits. The following table shows the amount that could be claimed, in respect of the monthly subscriptions paid, at the end of the several years of membership.
SHOWING THE AMOUNT WITHDRAWABLE AT THE END OF EACH YEAR FOR THE RESPECTIVE MONTHLY SUBSCRIPTIONS STATED IN THE ABOVE TABLE. ———————————————————————————————————————————————————————————— | At the | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | | | | | | | end of | 2 12 10 | 1 18 8 | 1 10 2 | 1 4 6 | 1 0 6 | 17s. 6d. | 15s. 2d. | 13s. | 11s. 8d. | 10s. 6d. | |Year of | per | per | per | per | per | per | per | per | per | per | | Mem- | month, | month, | month, | month, | month, | month, | month, | month, | month, | month, | |bership.| 3 years.| 4 years.| 5 years.| 6 years.| 7 years.| 8 years.| 9 years.| 10 years.| 11 years.| 12 years.| |————|—————|—————|—————|—————|—————|—————|—————|—————|—————|—————| | | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | | 1st | 31 14 0 | 23 4 0 | 18 2 0 | 14 14 0 | 12 6 0 | 10 10 0 | 9 2 0 | 7 16 0 | 7 0 0 | 6 6 0 | | 2nd | 64 19 0 | 47 11 0 | 37 2 0 | 30 2 8 | 25 4 2 | 21 10 6 | 18 13 1 | 15 19 9 | 14 7 0 | 12 18 3 | | 3rd |100 0 0 | 73 2 0 | 57 1 2 | 46 6 10 | 38 15 6 | 33 2 0 | 28 13 9 | 24 11 9 | 22 1 4 | 19 17 2 | | 4th | — |100 0 0 | 78 0 2 | 63 7 2 | 53 0 2 | 45 5 1 | 39 4 5 | 33 12 4 | 30 3 5 | 27 3 0 | | 5th | — | — |100 0 0 | 81 4 6 | 67 19 2 | 58 0 4 | 50 5 8 | 43 1 11 | 38 13 7 | 34 16 2 | | 6th | — | — | — |100 0 0 | 83 13 2 | 71 8 4 | 61 17 11 | 53 1 1 | 47 12 3 | 42 17 0 | | 7th | — | — | — | — |100 0 0 | 85 9 9 | 74 1 10 | 63 10 1 | 56 19 10 | 51 5 10 | | 8th | — | — | — | — | — |100 0 0 | 86 17 11 | 74 9 7 | 66 16 10 | 60 3 1 | | 9th | — | — | — | — | — | — |100 0 0 | 86 0 1 | 77 3 8 | 69 9 3 | | 10th | — | — | — | — | — | — | — |100 0 0 | 88 0 10 | 79 4 9 | | 11th | — | — | — | — | — | — | — | — |100 0 0 | 89 9 11 | | 12th | — | — | — | — | — | — | — | — | — |100 0 0 | | 13th | — | — | — | — | — | — | — | — | — | — | | 14th | — | — | — | — | — | — | — | — | — | — | | 15th | — | — | — | — | — | — | — | — | — | — | | 16th | — | — | — | — | — | — | — | — | — | — | | 17th | — | — | — | — | — | — | — | — | — | — | | 18th | — | — | — | — | — | — | — | — | — | — | | 19th | — | — | — | — | — | — | — | — | — | — | | 20th | — | — | — | — | — | — | — | — | — | — | | 21st | — | — | — | — | — | — | — | — | — | — | ————————————————————————————————————————————————————————————
——————————————————————————————————————————————————————- | At the | | | | | | | | | | | end of | 9s. 1d. | 8s. 4d. | 7s. 7d. | 6s. 11d. | 6s. 4d. | 5s. 10d. | 5s. 4d. | 5s. | 4s. 7d. | |Year of | per | per | per | per | per | per | per | per | per | | Mem- | month, | month, | month, | month, | month, | month, | month, | month, | month, | |bership.| 13 years.| 14 years.| 15 years.| 16 years.| 17 years.| 18 years.| 19 years.| 20 years.| 21 years.| |————|—————|—————|—————|—————|—————|—————|—————|—————|—————| | | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | | 1st | 5 9 0 | 5 0 0 | 4 11 0 | 4 3 0 | 3 16 0 | 3 10 0 | 3 4 0 | 3 0 0 | 2 15 0 | | 2nd | 11 3 5 | 10 5 0 | 9 6 5 | 8 10 2 | 7 15 10 | 7 3 5 | 6 11 3 | 6 3 0 | 5 12 9 | | 3rd | 17 3 8 | 15 15 2 | 14 6 8 | 13 1 5 | 11 19 7 | 11 0 5 | 10 1 9 | 9 9 1 | 8 13 5 | | 4th | 23 9 9 | 21 11 0 | 19 11 10 | 17 17 5 | 16 7 7 | 15 1 5 | 13 15 10 | 12 18 7 | 11 17 1 | | 5th | 30 2 3 | 27 12 6 | 25 2 3 | 22 18 3 | 20 19 11 | 19 6 5 | 17 13 8 | 16 11 6 | 15 3 11 | | 6th | 37 1 5 | 34 0 3 | 30 18 3 | 28 4 0 | 25 16 11 | 23 15 8 | 21 15 4 | 20 8 1 | 18 14 1 | | 7th | 45 4 2 | 40 14 2 | 37 0 0 | 33 15 3 | 30 18 9 | 28 9 3 | 26 1 1 | 24 8 6 | 22 7 10 | | 8th | 53 18 9 | 49 8 3 | 44 18 0 | 40 19 10 | 36 5 8 | 33 7 8 | 30 11 1 | 28 12 11 | 26 5 2 | | 9th | 62 2 4 | 56 17 8 | 51 13 10 | 47 3 8 | 43 3 5 | 39 14 10 | 35 5 8 | 34 2 7 | 30 6 5 | | 10th | 70 13 5 | 64 14 6 | 58 16 5 | 53 13 8 | 49 2 7 | 45 4 5 | 41 7 5 | 38 16 8 | 34 11 9 | | 11th | 79 13 1 | 72 19 4 | 66 6 3 | 60 10 3 | 55 7 9 | 50 19 8 | 46 12 10 | 43 15 7 | 40 1 5 | | 12th | 89 1 9 | 81 12 4 | 74 3 5 | 67 13 8 | 61 19 1 | 57 0 5 | 52 3 5 | 48 19 5 | 44 16 5 | | 13th |100 0 0 | 90 16 8 | 82 8 5 | 75 4 2 | 68 17 0 | 63 7 5 | 57 19 7 | 54 10 0 | 49 16 3 | | 14th | — |100 0 0 | 91 1 9 | 83 2 5 | 76 1 10 | 70 0 8 | 64 1 6 | 60 0 0 | 55 1 1 | | 15th | — | — |100 0 0 | 91 8 5 | 83 13 11 | 77 0 ___| 70 9 7 | 65 18 8 | 60 11 1 | | 16th | — | — | — |100 0 0 | 91 8 5 | 84 7 8 | 77 4 0 | 72 3 5 | 66 6 8 | | 17th | — | — | — | — |100 0 0 | 92 1 10 | 84 5 3 | 78 14 5 | 72 8 0 | | 18th | — | — | — | — | — |100 0 0 | 91 13 6 | 85 11 11 | 78 15 5 | | 19th | — | — | — | — | — | — |100 0 0 | 92 16 4 | 85 9 2 | | 20th | — | — | — | — | — | — | — |100 0 0 | 92 9 8 | | 21st | — | — | — | — | — | — | — | — |100 0 0 | ——————————————————————————————————————————————————————-
For example, the depositor of 13s. a month for a ten years' term, if he desired to withdraw his savings at the end of six years, would be entitled to £53 1s. 1d.; the depositor of 7s. 7d. a month for fifteen years could claim, at the end of the ninth year, £51 13s. 10d.; and the depositor of 4s. 7d. a month for twenty-one years could get back £44 16s. 5d. at the expiration of the twelfth year. In each case the earnings of the depositor would have been increased by the interest added.
BORROWERS.
A member desiring to effect an immediate purchase of a house or property may borrow the money required by depositing the title deeds with the society as security, and repaying the loan by instalments, monthly or quarterly. Or if he elect to build a house himself; he deposits the deeds of the land with the society and takes up a loan by instalments as the work proceeds. In this case an architect or surveyor would have to give a certificate from time to time to the effect that so much money could be advanced upon the work actually done; and the repayment of the loan would only begin when the house was finished. The following table shows the repayments required, including interest for each £100 advanced:-
—————————————————————— | Term of years. | Monthly. | Quarterly. | |————————|——————|——————| | | £ s. d. | £ s. d. | | 1 | 8 14 0 | 26 4 6 | | 2 | 4 10 0 | 13 11 4 | | 3 | 3 3 0 | 9 9 11 | | 4 | 2 8 9 | 7 7 0 | | 5 | 2 0 3 | 6 1 4 | | 6 | 1 14 7 | 5 4 3 | | 7 | 1 10 6 | 4 12 0 | | 8 | 1 7 6 | 4 2 11 | | 9 | 1 5 2 | 3 15 11 | | 10 | 1 3 5 | 3 10 7 | | 11 | 1 1 11 | 3 6 1 | | 12 | 1 0 8 | 3 2 4 | | 13 | 0 19 8 | 2 19 4 | | 14 | 0 18 9 | 2 16 6 | | 15 | 0 18 0 | 2 14 3 | | 16 | 0 17 4 | 2 12 3 | | 17 | 0 16 9 | 2 10 6 | | 18 | 0 16 2 | 2 8 9 | | 19 | 0 15 8 | 2 7 3 | | 20 | 0 15 3 | 2 6 0 | | 21 | 0 14 11 | 2 5 0 | ——————————————————————
And in like proportion for larger or smaller loans.
In many societies it is a common practice to ballot amongst the members for the right to receive an advance (sometimes without carrying interest) which right may be transferred, for a consideration, to some other member.
By this table it will be seen that a person borrowing £100 for ten years would have to repay the amount by monthly instalments of £1 3s. 5d., or by quarterly instalments of £3 10s. 7d., and if borrowing for a term of twenty-one years, then by monthly instalments of 14s. 11d., or quarterly of £2 5s.
Now, if we refer to the depositor's table of rates, we shall find that he has, for a ten years' term, paid to the society £78, and received back £100; thus receiving from the society £22 (the difference) for the use of the money, plus the interest added. On the other hand, a borrower of £100 for the same term pays back, beyond the capital sum of £100, as much as £40 2s. in interest. Thus there is a difference of £18 2s. between the interest received by the depositor and that paid by the borrower. This constitutes the gross gain of the society on these trans- actions, but out of it has to be paid the expenses of the office, salaries of officials, and a reserve provided for bad debts, &c.
The social and moral utility of societies estab- lished for the direct purpose of aiding a man to become proprietor of his dwelling-house is obvi- ous, and the above calculations seem to show that a society conducted on the plan represented would earn an ample margin of profit for all contingencies.
Doubtless the greater number of the existing building societies, including the one whose figures have been quoted, are conducted in a safe and legitimate manner, but there have been, and may still be, exceptions.
As an inducement to join a building society, people are told that they have to pay, on the instalment system, the same as though they paid the rent of a house, and in a few years will become the owner. A man who has paid for three or four years only what he would have paid for rent, would have very little hesitation in throwing up his contract with the society, if the locality became objectionable to him or the in- evitable repairs of a cheap house were more than he could bear. The money borrowed is lent chiefly upon the security of small suburban houses, a kind of property always in course of depreciation, and it may be that the society would have returned upon its hands a number of houses in a bad state of repair and in a dete- riorating locality. The instalments having ceased and the houses void, the property becomes a profitless burden upon the society and a probable ultimate loss. When "jerry" builders are large customers of a building society and have some influence, direct or indirect, with its Board of Directors, the evil is greatly aggravated. Whole streets are built with borrowed money, on specu- lation until, perhaps, there are twice as many houses as can possibly be let.
The society, to protect itself, is bound to con- tinue advancing until it is drawn completely into the net and finds itself encumbered with a lot of unsaleable and useless property. To stave off the evil day when all things must be disclosed to the trusting member, "financing" is restored to, money raised on direct deposit, and advances obtained from banks. The money thus raised tides the society over their difficulties for a time, but it may be that some rumour or report influ- ences members and depositors to withdraw their money, and eventually the coffers are empty and the end arrives.
Unhappily, in the collapse of more than one building society during the last few years there have been revealed frauds and dishonesty of the most flagrant character, and hundreds of trusting investors of the industrial classes have been ruined through the machinations of scoundrels, some of whom posed as philanthropists and ultra righteous members of society. To protect the interests of members and depositors, only men of unimpeachable character and business ability should be elected Directors of a building society, and the audit ought to be of the strictest char- acter. The balance-sheet should present details of the securities upon which the advances are made, and the auditors should certify that they have examined the deeds and identified them as representing the property described in the balance-sheet. Generally speaking, the auditors appointed by the members are not lawyers, and have not the necessary skill for verifying the documents relating to the property, indeed they are not expected to do so. One of the auditors should certainly be legally qualified to ascertain that the securities of the society do represent the properties set forth in the balance-sheet, and he should give a certificate to that effect. If this course were insisted upon, such scandals as have been brought to light could hardly be repeated, where one set of deeds was made to do duty for the assets of three distinct societies, each man- aged by the same Board of Directors; and the case in which the deeds of abandoned or destroyed property were palmed off upon the auditors to represent securities which had practically no existence. The industrial classes are less careful than those above them in seeing to the safety of their investments, and some legislation seems to be called for to prevent their hard-earned savings being frittered away by bad management or rank dishonesty.