Mortgage Loans
By R. J. P. EDEN
vut the last few years the monetary require- ments of local authorities have increased substantially. Gone are the days when capital requirements were largely met out of revenue. As the householder relies more and more on hire-purchase facilities to pay for his goods, and bank overdrafts become bigger than ever before, the Government and local authorities pile up their debts, paying Paul by borrowing from Peter, using their rate- or tax-raising potential as a chief asset in the stock and mortgage market.
Because of the pressing need for more and more money, local authorities have been forced to offer terms to the widow sufficiently attractive to part her, albeit temporarily, from her mite, and to tempt retired folk to lend their savings. In fact these local authority , stocks and mortgages have now become supremely attractive in their own field, and a very great deal of new money is raised in this way.
The local authorities concerned are the coun- ties, county boroughs, boroughs, urban and rural districts; also water, crematoria, sewerage and similar boards, and various harbour and other independent statutory public bodies with local jurisdiction.
The loans are for periods of a few days or & few years; and, except for periods of less than two years. they are usually secured by an ims posing legal mortgage deed setting out the terms of the loan, all prepared and stamped and sealed by the local authority at no expense to the lender. For periods of less than one year only a re- ceipt is issued, as these are generally for very
large amounts and subject to a few days' or a few months' notice of repayment by either side; and so, by their nature, and because of the time factor and the expense to the borrower, usually no mortgage is issued.
The security for these loans is the power to levy rates and all the assets of the borrower, and all charges rank purl passu. This means, in effect, that they are just as solid as any bor- rowing by the Government; because no Govern- ment could evade the ultimate responsibility in practice.
In view of the fact that it is impossible to find a better security, the rates offered are extremely attractive, especially to small funds and in- dividuals who do not incur high income-tax rates. Pig, dog and cattle societies, religious and charitable funds, village hall funds, societies for the preservation or the abolition of this or that, guild and union funds, liquidation funds, re- placement and reserve funds and many others, besides civic-minded, retired or impoverished people. might all find these investments attrac- tive. After all, money thus invested is set to work for the good of the community, is completely secure, and obtains a high yield. Unlike gilt- edged and equities they do not soar like a sputnik and sink like a stone. They may be vulnerable to substantial falls in the buying-power of the pound, but they are a hedge against market de- pressions. Interest is paid regularly twice a year, usually in March and September. If something happens forcing the lender to call in before the due date, and special compassionate grounds can be claimed, the borrower will usually oblige; but these mortgages can be sold through the market at a price roughly equivalent to the ruling yield basis, allowing 2 per cent. transfer stamp duty and a small commission for the broker.
The simplest way to find a local authority to take your money is to peruse the advertisements which appear in the press giving the name of the potential borrower and the terms he is prepared to offer. By scanning these it will be seen that there is a small variation in the rates offered because some need it more than others, and some names are more generally popular than others, and so they offer more or less for their money. In fact there need be no distinction, and the in- vestor would be well advised to go for the highest rate offered provided the borrower is a genuine local authority, which can easily be checked in the appropriate books of reference at your local public library or in various other ways.
Should you be neither retired, nor particularly civic-minded, nor impoverished, and be thinking in terms of say, £10,000 or £10,000,000, these in- vestments could still be of interest because the lower administrative cost to the borrower makes it possible for him to offer around + per cent. more for your money than the rate he advertises. In such a case you would be well advised to consult your stockbroker, and ask him to obtain from one of the specialist brokers a report of what is on offer at the time. These firms keep up- to-date information on the requirements and terms offered by all the local authorities through- out the country. To sum up, these loans are (a) completely secure; (b) high-yielding; (c) useful to the com- munity; (d) a hedge against market depression; (e) free of expense to the lender; (f) freely avail- able and simple in practice. And I think the fact that the money will be used for enlarging and improving essential public amenities is an attrac- tive extra incentive.
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