« ПредыдущаяПродолжить »
“GOVERNMENT OFFICERS' BUILDING SOCIETY."
MR. RICHARD SWIVELLER, who inhabited a solitary garret of small dimensions and great elevation, was accustomed to speak with complacency of his “ apartments ; " a piece of vanity imitated by all the needy individuals who inhabit the attic stories of the metropolis. · But the desire of seeming to possess, is naturally far exceeded by the wish really to own, household property. The superiority of this, in point of personal comfort and respectability, over every other description of property, involves the discussion of matters with which we have at present no concern. Suffice it to say, that the desire is so universal, and so strong, as to render some degree of caution necessary, lest persons, fraudulently disposed, should avail themselves of the wishes of others, and make bargains of an usurious nature. During the last few years, a number of building societies have been established, for the ostensible purpose of lending money, at a fair rate of interest, to be employed in the structure, purchase, or improvement of houses. We have no intention, at present, of noticing any other of these societies, than the one whose name forms the heading of this article. As we are not intimately acquainted with the regulations of any other build. ing society, we can safely affirm that our remarks are only intended to apply to this, the prospectus of which was forwarded for our opinion by one of the parties to whom it was addressed. We are the more inclined to criticise this, becanse it is not, as yet, definitely established; so that, if our calculations and statements be correct, they may act as a timely warning, and if wrong, may be answered and refuted in the very outset of the society.
The prospectus commences with the following statement, upon which, though its accuracy is not sufficiently clear, the whole after-arrangements are said to rest :
“ The whole arrangement rests upon the fact, which will be recognised by every one who has paid any attention to the subject, that the rent which tenants usually pay far exceeds the usual rate of interest upon the value of the house. A person who buys the house he lives in will, therefore, save the difference between the interest on the cost of the property and the net rent which, if he were a tenant of the same property, his landlord would receive ; and, of course, the accumulated. savings, in a greater or less period varying with the circumstances of the case, will eventually replace the purchase money."
Now, with regard to the first part of this statement, we can only say that it is not proved. If we take a house in Grosvenor-square or Regent-street, or Cornhill, we do, indeed, pay a high rent for the house; but we must remember, that the landlord pays a proportionate ground rent, which we should be compelled to pay if the house were our own. Moreover, we take that house for certain advantages which it gives us, either as regards our position in society or our prospects in trade, and we must consider part of our rent as a fair interest upon the value of those advantages. But if we take a house in any district where houses are not in such demand, because the situation is not so advantageous, we shall find that the landlord, after paying the ground rent and making
the constantly necessary repairs, does not realise much more than five per cent. upon the money which the house cost him. But let us sup. pose that he does ; let us suppose that, after paying all the claims upon him, he does realise ten per cent. upon his original outlay. Will he, when he sells that house to us, part with it for much less than the sum necessary to produce the same profit which he would obtain if he leased it to us? Most assuredly he would not; wherefore it is hard to see how the first and second parts of the statement, which we have quoted, tally with each other. The truth is, that the rent of a house depends as much upon its situation as upon its size. In a good situation we should pay a high rent, but we should regard that rent as a return for the advantages of the situation, and we could not buy a house in that situation without paying an equally high price. In a less favourable situation, we should not be called upon to pay a higher rent, all things considered, than a fair rate of interest upon the value of the house, because, in a situation where houses were not in great demand, the rent of all the houses must very soon reach the lowest possible level. We are willing, however, to admit that these observations upon the buying, will not apply with equal force to the building of houses, though we might reasonably use nearly the same arguments in considering that branch of the subject. But we will pass on to the general Construction of the Company, and point out what we conceive to be its chief defects. The capital of the Company is stated at £120,000, in we thousand shares. But this capital is to be raised by annual payments of sis guineas per share—that is, by the accumulation of a net aanual income of £6,300. And the dealings of the Company are to be so favoured by fortune, as to make this annual income amount, in ten Tears (or probably much less), to £120,000, that is, to nearly double the Det amount paid in that time. Now, a constantly-accruing annual capital of £6,300 will not, even at ten per cent. compound interest, prodace £120,000, in this given time. Supposing the Company to be worked free of expense, and its capital to be regularly invested at about 12 per cent. compound interest, the stated result might, doubtless, be obtained. But from whom is this interest to be obtained ? Not in the regular way of trade, most certainly, but from the members of the Society, who are to borrow their own money at this rate of interest, in order to buy, build, or improve houses. But as few people would care to borrow money at 80 high a rate of interest, the case is put differently, so as to show that the highest possible advantages may be acquired by the payment of the Stallest possible sum ; a proposition which all companies endeavour, though all fail, to prove. Thus, if we subscribe to this Society, we are bound to pay six guineas annually, in return for which, at the end of ten years, we are to receive £120. But if we wish to receive that sum in the first year, the Society will give it to us, minus a discount proportioned to the advancement of the money before it is due. It, therefore, offers us not more than £70 in the first year ; but as it is clear that all the members cannot borrow this sum, it puts the loans up to auction, and sells them to those who will buy them at the greatest possible premium. Thus, if any member agrees to take £60 or £50 In the first year, in lieu of his promised £120, he will be preferred to us who wish to have £70. Now this we hold to be the worst feature
of the Society, because it is holding out an inducement to borror money at an usurious rate of interest. It must now be clear, that al the advantages which the “ lending members” derive, are a corres ponding loss to the “borrowing members," and that the nearer th former are to the receipt of their £120, the further are the latter fron the possession of the same sum. Now, in return for this money which we borrow in the first year, we have to pay an annual six gui neas, an interest of one per cent. on the gross amount of £120, and ài interest of two per cent. on the net amount of the loan. Supposing that we borrowed £70 in the first year, we should have to pay £8 18s per annum for ten years. Let the arithmetical reader calculate this, and allow five per cent. compound interest on the part of the Company, and he will find both how much we pay for our £70, and how far it is from yielding £120 to the Society. If we borrow money in the second year, we must of course have a higher loan, because we are nearer to the receipt of our £120; and this loan must increase in each succeeding year. The Society puts this yearly increase at £5 per annum ; so that, if the first year's loan were £70, the loan of the second year would be £75, and the loan of the third year £80. Of course, the Society would every year put out to interest the balance which it possessed, after making its loan, but we do not think it could easily or safely obtain more than five per cent. interest for this money. Of course, those members who borrow will have nothing to receive at the end of the ten years, so that if many borrow, there will be few to receive, and vice versâ. We first made a calculation of the Company's resources, supposing that they lent to eighty-four members every year, and the result proved that they would be in debt to the amount of £20,000. Thinking that this might arise from lending money to too many members, we made a fresh calculation, which we now submit to our readers. And we begin by remarking that we only put the first year's loan at £60 instead of £70 per share, whereby we give a great advantage to the Society ; in spite of which advantage, the result is debt.
Balance in hand.
Fifth year's income.
Balance in hand . . .
Balance in hand.
340 288 1,678
Seventh year's income
Balance in hand .
Eighth year's income
Balance in hand.
Ninth year's income. .
Balance in band .
and 9th loans ,
Tenth year's income . . . .
By this calculation the Society has now lent money upon three hundred and sixty out of one thousand shares. It should now, according to its promise, make an allotment of £120 per share to the holders of six hundred and forty shares. But this would require a capital of £76,800, so that the funds of the Society, which only amount to £52,601, fall £24,199 short of the amount required. Now, let our readers remember, that we have based our calculations upon the premises put forward by the Society. Let them, also, remember that any further advantage to the lending members must come out of the pocket of the borrowing members. We would call attention to the amount of loan which the borrower receives in the ninth year. It is only £100; whereas if he waited until the tenth year, he would receive, or rather would be entitled to receive, £120. This fact will be a sufficient answer to those who shall think that we have not given the lending members their fair advantage. Another feature we would notice is this, that the Society has made no allowance whatever for working the scheme. We do not exaggerate when we say that, three trustees, a committee of management, a secretary, and the official expenses, would carry off, at least, five per cent. upon the annual income. The lawyer and the surveyor must also be paid, but their fees would, of course, come out of the borrower's pocket, which would greatly increase the rate of interest at which he borrowed his money. In conclusion, we would observe, that the calculations which we have made have not as yet prejudiced us against building societies in general. We shall resume the subject at a future time; but at present we must content ourselves with recommending government officers to avoid the Society whose prospectus we have criticised. We recommend them not to be “ lending members," lest they should not reap the promised and ex. pected profit; and not to be “ borrowing members,” lest they should be compelled to pay more than the value of the property, which will,