BUILDING AND LAND SOCIETIES.

Poverty Bay Standard, Volume I, Issue 52, 14 May 1873, Page 3

BUILDING AND LAND SOCIETIES.

• (From the TFanyanwi Chronicle?)

To clearly understand the working of Building and Land Societies," it is necessary that some notice should be taken of the doctrines of Annuities and Compound '-Interest; for in ; practice whenever interest is taken into the it is, crimpohnd and not simple. The difference between compound and simple interest can not be set in apiqre .striking -point of view than in the following cases, taken from Bailey’s “ Tables for purchasing leases,” and from the “ Doctrine of Interest and Annuities,” by the same author t —“ A person who lays out £lOO in purchasing a lease for 100 years, mohey being at 10 per eent., has a property, within one farthing a year, equal to a freehold : because this farthing a year laid by, and improved at the same rate of interest, would produce £lOO at the end of 100 years.” "One penny put out to interest, A.D 1, ats per cent, compound interest, would, in the year 1800, have amounted tp more money than, could be expressed by • three hundred and fifty-seven millions of globes, each equal to the earth in magnitude, aU solid gold !! !* But, if put out to simple interest, it would, in the same time, have amountol to no more than seven shillings and sevOh pence half-pennyj* 1

Most people are aware of the fact that at 5 per cent, money would double- ittelf iin about 14 years, and at 10 per cent, in about 7 years ; but very few have had occasion to consider the matter any farmer, and if asked the question if £1 will become £4 in 28 ytars at 5 per cent., what will it be at 10 per cent, in the same' time ? would answer £BL ?! But this is far from being the right answer ; for although it is true that at 'l4 yerfrs one is only double that 1 of the other, at every other cycle of 14 years it increases in geometrical, and not in arithmetical progression; or, in other words, it r is the. square Of the bum of 5 per cent, which produces the answer for 10 per cent. Thus at 28 years, 4x4 £l6; kt 42 years, 8X 8, £64 ; arid the value of the penny would be three hundred and fifty-seven globes multiplied by that number. Therefore, although at first sight it may seem an anomally, a lower rate of interest nominally charged by a Building Society, is no advantage to the borrower, and a great disadvantage'to a lender. No one. Will dispute our proposition as far as the latter is concerned, and we think there, will be no difficulty in forcing a conviction of the truth of it as to the former. To quote from a well known authority oh “Periodic Payments”: “The advantage obtained by a borrower who pays a certain annuity (and calls and interest are only another name for an annuity) in return for a loan, diminishes as'the number pf years increase. Example: If a borrower pay £8 8s a year for ten years for a loan of £59, he is paying at the rate of 7 per cent, yearly interest; but if the ’ term be increased to 13 years; the rateofi interest will’ be about 10 per cent'”" ‘But to come nearer .home,, we may take the Society which has just closed us ah' example. The * number of monthly payments was the, interest charged, 10 per cent. So if a member borrowed the first month, he would, have paid 81 months’ interest and calls. Now take a Society at any other rate bf iutefebt, and allow, for the sake of argument, that the same advantages 'in the form /of premiums,. j fines, and freedom from Toss were obtained', ‘it wdula require at least the sa.me ,gross amount to be paid. There would he "a slight doubtful advantage to the borrower by the payments being extended over a longer space of time, which would scarcely be felt, unless the mortgages was for a larger sum;, whilst the lender would have to pay £5 8s more per share in a 5 per cent. Society; ’( Whatever rate of interest > may be charged, there is one fact that must be borne in mind, and that is the time any sum will take to double itrelf in. As already shown, money at cent, will double itself in about 14 years.’ That is io sSy. tnri simple interest of £lOO will amount to £7O, ann the compotiiuling ■ wjH l add £3O to dtp thus making up the hundred. And whatever rate is taken from 1 peF cent, to 10 per cent., about the same, figures will show. But it is not merely in the shortening of the time over which the payments will extend, that the higher rate,, of interest, fa favorable. Tri England, where the ? rate of interest'"for mortgages of the clasS usually offered to Sbcietie/ is 5 per cent., it has -bebri l foubd advantageous to make the interest 7 per cent., for the higher rate not only incteiMs-'flie rtoutlily rdetipfs from members, but by enabling the Committee to obtain money from other sources, and yet make' a -this obviaitirig ihe great delay* there

would otherwise be in meeting the wants of the members at the: erirfyi pttrt rif > the Societies’ operations. We will take two examples from the “Tabular” system f member) wishes to purchase a house ‘for £4OO, in which he resides, paying £36 a-year .reftt., . subscriptions at 5 per cent, would amount to £547 Os 3d, but whilst waiting six months he has to pay £lB rent, making a total of £565 W 3d. la a 7 per cent. Society he would get the money at once, and 0n1y(i»y.556 5e fid.;; But if he has not yet selected his property, it will be more to his advantage to wait ih'cohneaioA with d 7 than-with a 5 per cent. Society ; for he would get a better rate of interest for his investment during such delay. Ori Wliitirig fifteen nionths, the difference in favor ef the 7 per eent. would be £l® Sfi 10d i in. three years, £25 J3s 2d. p z In writing three artielea we have endeavored to avoid showing anything like A hww/mjfaivff? of either of the two classes of Societies. They are so completely different, that thore need be no more feeling nf tivrihy between Uripromoters than theore is between ths Bank of England and a Springs Bank..- The one is essentially a Mutual Institution, where weryymembww, vnna the sune risk of profit or loss. The other is mere of the nature of a Joint Stock Company,

where the shareholders, iq, consideration of the risks, take a rather larger per rentage of the profits ; whilst the customers get what accommodation they require-at a fixed equitable rate. They are both calculated to do good to the small capitalist, by offering a safe means for investment of savings,' at a rate of interest so much higher than could be obtained from auv other source ; to the borrower, the almost certainty of redeeming his mortgage by his savings; The experience of almost experience of almost? every solicitor,'merchant, or agent, acting as negociator of mortganes, goes to prove that not one out of twenty mortgagors, in the ordinary sense of the word redeems the first mortgage op his property by his vofantare savings. The experience of every Director of a Building Society goes to prove that not one member out of twenty who mortgage to the Society, but does redeem his property by his compulsory savings. We cannot, therefore, close this article better than with the recommendation to oUlr Tedders, one and all, ‘, If you are not a member of a Buildiug Society, be advised and join one at once.”