Building Societies

Sun (Auckland), Volume 1, Issue 95, 13 July 1927, Page 10

Building Societies

Hints on Their Operations How To Get Loans THE task of the young home-builder in saving enough money to erect a home for himself is not an enviable one. And yet, hundreds of new homes are being erected in and around Auckland for young people. Undoubtedly many of these homes are being built with monetary help from building societies, and an opportunity is here taken of giving a few details of how these societies operate.

IT will be understood, of course, that the details of different societies vary considerably, but the principle follows closely on that outlined. The object of a building society is to raise by subscriptions from members, funds from which advances are made to members, free of interest. These loans are made for the purpose of enabling members to purchase freehold or leasehold property, to erect buildings, or to liquidate existing mortgages. The loans are secured by mortgage, and repayments are made on very easy terms. CO-OPERATIVE FINANCE A typical building society belongs to the members; it is their own institution, and they share in its success. It is a true co-operative organisation, every penny profit being eventually distributed among members. There are

no preferential shares; all the members are on an equal footing, each receiving exactly the same benefits. The spirit of co-operation is the guiding principle of the society. The small weekly subscriptions of the members, plus the repayments of loans, accumulated each month or so, enable other shareholders to obtain loans, free of interest, when won by ballot. So that each time an advance of money is made, it is a case of the many helping the individual. HOW TO JOIN Membership of a building society is open to anyone who can afford to pay Is or 2s a week. To become a member (or shareholder) all one needs to do is to apply for one or more shares as desired. Naturally to remain a member and participate in the benefits of the society, one must keep up regularly the subscriptions on the shares. Each share entitles the holder to a loan of usually £IOO or £2OO, free of interest, unless he uses his privilege as a member to purchase a loan by tender, in which event interest or its equivalent is paid. LOANS BY BALLOT * At the end of the first month after the formation of a new group, the shareholders are called together, and a ballot is held to determine who is to receive the first loan. Thereafter ballots and sales are generally held alternately, or as frequently as funds are available. When a group emerges from the early stages, loans are available more frequently, as the repayments on sums already advanced help to swell the amounts received from subscriptions. Loans secured by means of ballot are free of interest. PURCHASE OF LOANS Sometimes loans are granted to the highest tenderer among members of the group. When sufficient money is available a general meeting of members of the group is called, in precisely the same way as for a ballot, and a loan is offered at a minimum price. The member who puts in the highest tender over the minimum reserve receives the loan. It is obvious that, as the shareholder who requires the money, and purchases a loan, has not to pay interest to the society, it is to his or her advantage to offer a good premium for the use of the money. The amount paid for the right to borrow from the society may be added to the loan, and the whole is repaid in regular instalments over a period of usually about 12 years. It generally happens.

too, that if a premium is paid in cash, a rebate or discount is allowed. HOW LOANS ARE REPAID Repayments of loans are usually commenced within one month from the date that the money is accepted, and are made at a certain rate per annum for every £IOO or £2OO advanced, usually in fortnightly or monthly instalments. Thus, at the end of a little less than 12 years, the loan is repaid in full, and your home is yours. When a shareholder secures an appropriation, he still continues to pay subscriptions on his shares until each member of his group receives a loan. THE SECURITY REQUIRED A society accepts As security for the money advanced as loans to members any freehold or leasehold land, or interest therein. Provided it is

proved to afford a sufficient margin against loss. Should a member be unable to provide adequate security at the time, either for the whole or part of the amount, a society will usually invest the money for him, crediting him with the interest, but he commences to repay the loan as if the appropriation had been utilised. Or he may forgo his right for the moment, and take it up later. THE USE OF LOANS Loan money may be used by the member for the purpose of buying house property already erected, building on freehold or leasehold land, or for paying off mortgages. Or, if desired, the money may be placed on deposit in the bank, the member receiving the interest; or it may be sold, with profit to the member. WITHDRAWALS Members often find they are unable to continue for some reason or other, and wish to withdraw. Provision is usually made for cases like this, by allowing the member to withdraw at the expiration of a certain term of years from the formation of the group. In cases of such withdrawals, the member usually receives back all his subscriptions, less fines and other charges that may be due. Of course, on notice of withdrawal being received, the member ceases to participate in ballots and other activities of the society. THE BENEFITS ILLUSTRATED To give a very simple illustration of the benefits to be derived from membership in a typical building society, suppose that you raise a mortgage of £BOO at 6 per cent, (which is quite usual). The interest will be £4B per annum. In 11 years, you would have paid in interest alone the sum of £528, and still owe the original £BOO. And you could keep on paying interest until you had paid away in this manner a sum far in excess of the principal, which would remain like an incubus, preventing you from getting clear of the debt. On the other hand, if you obtain a ballot, entitling you to a loan of £BOO free of interest, in a very few. years (generally about 12) you will have repaid the whole debt. Or, even if a loan is purchased, and a premium paid for the use of it, the advantage is overwhelmingly against the ordinary mortgage. Other illustrations might be given, but anyone by a little thought will appreciate the manifold benefits to be derived from membership of any. good building societ3\