Building Societies: The Present Scene
By KEITH KNOWLES T the beginning of 1962 lending for house
purchase was at a low level because of the relatively poor inflow of funds from the public towards the end of 1961. As 1962 progressed, however, the inflow improved, against a back- ground of falling interest rates and an easing of credit restrictions, and by the end of the year most societies were able to satisfy quickly any reasonable request for a mortgage. The final results for 1962 showed that during the year societies had lent a record amount of £613 million. The net investments received amounted to £361 million, compared with £203 million in 1961.
After these successes, the year 1963 started rather quietly for most building societies. Mort- gage loans dropped during the first quarter, the usual drop being accentuated on this occasion by the severe weather which caused the opera- tion of the house-building industry to be almost stopped for the whole of the quarter and which deterred many people from house-hunting. Sav- ings poured in and building societies became embarrassed by the amount of money they had in hand. For the first time in many years adver- tisements for mortgages appeared.
As winter turned to spring, however, it became evident that there had been only a temporary set- back in the mortgage demand, and in recent weeks this has returned in full strength. The heavy demand for loans was accompanied by a com- paratively high inflow of funds, but in the last few weeks investments have fallen slightly and withdrawals have steadily increased. Societies are, therefore, beginning to find it difficult to meet the mortgage demands and some house buyers are compelled to try more than one society.
What are the prospects for the rest of the year? The high demand for mortgages is ex- pected to continue and to meet this societies must continue to attract funds at a high level. Indeed. they will require even more than the record figure obtained last year if they are to meet the estimated £700 million which they are expected to lend this year. So the societies are faced once more with the problem of attracting investments and it seems unlikely that they will be able to consider a reduction in rates of in- terest during the remainder of 1963.
Apart from the amount of money available, borrowers are interested in the type of property on which they can expect to get a loan. The societies have in the past come under strong criticism because of their alleged reluctance to lend on older houses or, indeed, on those of very modern design. But it must be remembered that their ability to lend on any type of property is governed by the funds available. If there is a shortage then, not unnaturally, they tend to lend on those properties which offer the best security. If funds are ample, then they are able to liberalise their lending policies, and this is what happened towards the end of 1962. As funds improved, borrowers benefited from an increase in average percentage advances and an easing of income requirements. Many societies started to offer flexible mortgage terms to young borrowers.
Both the Government and the press have urged building societies to liberalise their lending policies even more. Societies have sensibly re- sisted this pressure. They realise that to do so could involve their borrowers in too heavy a financial burden. In addition, with the building industry working at full strength, easy credit would only have the effect of pushing up house prices even higher.
Building societies are certainly not as loth to make advances on pre-1919 houses as is popu- larly supposed and a survey of lending in 1962 showed that nearly one-quarter of the loans made were on just such properties.
Building societies realise that not every person is suited, or indeed wishes, to become a home owner and that there must always be some sec- tions of the population whose needs are best met by renting. The emphasis in recent years upon home ownership has tended to obscure the fact that from their earliest days building societies have consistently devoted a small pro- portion of their funds towards helping in the provision of accommodation to let. The pro- posals in the recent White Paper about the pro- vision of housing to let at economic rents through the medium of housing associations have in general been welcomed by building societies. If the project blossoms, as the Government has every intention that it should, housing associa- tions may provide a very convenient outlet for funds at the time when the demand from owner- occupiers starts to fall away.
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