CHAPTER 3

FINANCING THE BUILDING BOOM

Making it Easy for the Lower-Paid Workers to become Home Owners

Through the 1930s neither the government nor the banks were seen as the main providers of funds or guarantees to assist with the house-building programme. This was the role of the building societies as their financial strength was enormous. The capital assets of the whole movement at the beginning of 1935 stood at over £500 million, largely un lent (1). By 1938 they had grown to £759 million. During that period the accounts of the Building Societies Association show they had advanced some £400 million. This compares with figures in 1922 when 'building societies advanced £22.7 millions to mortgagors and had total mortgage assets of £83.7 million' (2). When the building societies reported to the Central Housing Advisory Committee in October 1942 they said 'Between 1919 and 1939 their advances for housing amounted in all to £1,576 million. Immediately before the war they were advancing annually something like £130 million' (3). In the three years before 1939 the annual returns of the societies show that the societies advanced on average £132 million per year. Notwithstanding making advances of £132 million per annum, the amount outstanding by way of mortgage in 1939 was in the order of £400 million. The difference between a running rate of £132 million per annum and £400 million in total would be made up in repayments of mortgages caused by sales of houses or maturities of the loans. Such was the extent of the capacity of the building societies to lend. Even allowing for their hidden reserves they had only lent out on mortgage approximately 50 per cent of their depositors' funds.

As they were seeking outlets for their deposits it was in the interest of the societies to lend to the lower paid. The builders also wanted to build for the lower classes. John W. Laing the Chairman of Laing (Builders) Ltd said 'The building of houses for sale to men and women of the artisan and lower middle classes is one of the most important works of the building trade' (4). Frank Taylor, the chairman of Taylor Woodrow, builders of several thousands of houses at this time, considered that they too were building houses for the working-classes. 'the buyers of their houses were postmen, policemen, workers at a factory making buses for London Transport' (5).

It appears that from the early to mid 1930s the societies' main wish was to lend to an ever-larger number of small home owners. For this was where the opportunities were, this was to be the great untapped market for the societies. The builder/developers were also very eager for the societies to do so, as was the estate agent who acted on commission as their selling agent. The estate agents also took commissions from the building societies for introducing mortgages.

There was a need for more small houses. The Report of the Inter- Departmental Committee on Housing in 1933 said that, 'The census figures show that 40-50 per cent. of all families in many of the large towns consist of only two or three persons, and in our opinion part of the overcrowding problem is caused by single persons and a number of small family groups who are unable to obtain alternative accommodation suitable to their need and their purses'. They concluded that 'we think that a larger proportion of the small type of dwelling should be provided in future than hitherto' (6).

By the mid-1930s the builders were building smaller houses and the societies were indeed lending to the small home-owner in large numbers, as their accounts show. At the end of 1935 the number of mortgages under £500 was 655,026 and of those between £500 and £1,000 279,330. The number of mortgages over £1,000 was only around 25,000 (7). The survey only covers the bigger 108 top societies: had all societies been included it is likely that the proportion lent to smaller buyers by the smaller societies would have been higher.

One of the reasons for this was that the 'cost of a three bedroomed , non-parlour house had fallen since 1930 from £350 to £295 and with the fall in the price of money this was effectively an even greater saving, flats had fallen from £550 to £440.(8)' In the early 1930s the smallest and cheapest house being built in large numbers was in the region of £400, although the Hurlingham Bungalow Company were offering bungalows, these were cheap prefabricated structures, for £175, carriage paid, to be erected anywhere in England (9). Ideal Homesteads were advertising in the Daily Mail and Daily Express during the mid-1930s houses and bungalows from £350, and their £395 house was available for 9s a week plus rates during the early part of the decade. 'By the 1930s, a regular salary or wage of £200 a year was widely regarded as adequate security for a mortgage which might involve repayments of as little as 9s a week, well within the reach of engineers, fitters, printers, engine drivers and other skilled workers' (10) In Lincolnshire prices could be as low as £199 (11). Taylor Woodrow were building the Wonder House for £445, £25 down and 14/5 per week, in large numbers (12). The Economist survey of 1936 shows that in 1925 the proportion of loans under £1,000 was 77 per cent, by 1935 it had reached 85 per cent and the proportion was growing every year. The advances below £500 had increased in the decade to 1936 from 172,055 to 655,026, and the total of balances lent on mortgages under £500 from £54 million to £193 million. 'The preponderant part of building society mortgage business, both in extent and value, is now transacted in this class' wrote the Economist (13). The survey also shows that since 1929 the average value of individual mortgages had risen from £268 to £295 in 1935. As the information covers outstanding balances and not original loans it is natural that the average value should be less than £300 at a time when the cheapest house was in the region of around £450 to £500. A few years later the 1939 returns of the societies record that the average value of new mortgages was £604, although The Economist believed that 'the table requires some careful interpretation' (14). This caution was given because there were mortgages granted over £5,000 which were clearly on commercial premises, or to builders of estates of houses where one mortgage deed would have been prepared to take into account loans granted on a number of properties. The inclusion of these larger mortgage amounts would obviously distort the figures. For example, the accounts of New Ideal Homesteads in 1936 show that the Bradford Third Equitable Building Society had loaned £40,000, and the Halifax £20,000 to the company.

The building societies were pleased to advertise that they were now clearly housing the working classes. The Co-operative Permanent Society recorded in their accounts in 1936 that they had advanced £4.37 millions to new home owners with an average mortgage of £450 (15). In a speech marking the first fifty years of the Co-op Permanent Building Society in 1934, the chairman, Alfred Webb, said 'The society concentrated on making advances in respect of working-class properties. It has seldom, if ever, made advances in respect of large houses and then only if the amounts required were small' (16). Such a statement from the fifth biggest society was an important confirmation from the societies that they saw their role as helping to be the providers of homes for the working classes. It also indicates the history and background of the societies. They were essentially a working-class, northern movement with roots in the working and lower middle classes. Seymour Price, who was closely associated with the societies during the 1930s, wrote potted histories of the senior officers (17). From these it can be seen that they came mainly from families of modest incomes. Enoch Hill and Harold Bellman, who were to become the two most powerful figures in the movement, came from similar provincial backgrounds. They were both born into working-class families. Hill's family were silk-spinners and Bellman's farm-workers. They were both active locally in their churches and became Sunday school teachers and preachers. David Smith, Hill's deputy, was a leading figure in the Methodist movement and a long-standing member of their General Council (18). The societies, although respected locally, did not have much national influence. Their boards were seldom graced with members of the House of Lords until the end of the 1930s (19).

The societies' roots were in the working classes and they were willing to join with the lower paid to create opportunities for them to buy their own homes. Whether this was a form of paternalism driven by a profit motive is difficult to say but the societies' willingness to lend to the working classes continued in the 1930s, as the trend in the Economist survey in 1937 showed. There was a four-fold rise from £54 million to £194 million in the level of advances during the period from 1925 to 1936. Much of this was from mortgage advances in respect of the lower priced house costing below £500. In the 1930s the increase in the purchasing power of those in work together with the lowering of building costs produced a concentration of developers constructing the low-cost house between £400 and £700. The survey showed that the annual numbers of borrowers with loans under £500 increased by 390 per cent from around 57,000 to 280,000 during the period between 1925 and 1936.

By contrast, the proportion of mortgage business conducted over ,1,000 had dropped to 13 per cent by the end of 1936. Borrowers of larger sums were often able to take private mortgages from trust funds, marriage settlements and the like available from solicitors to the mutual benefit of both parties. The client received a better rate of interest than from gilt-edged securities and the solicitor received a fee for the introduction and carried out the legal work. Solicitors were able to tap an apparently inexhaustible supply of funds which could be lent at 5 to 5.5 per cent (20). Prior to 1914, 'The general public was the largest lender of conventional legal mortgages. A large number of investors of purely local horizons were glad to place their money in the hands of those...who had a talent for bricks and mortar' (21).

Therefore the boom was mainly at the lower end of the housing market in what could be called working-class houses for the lower paid in society. This tends to contradict the suggestions by Swenarton and Taylor that, 'By 1939 owner-occupation had become more, not less, middle-class; less, not more, working class (22). If any class was successfully "incorporated" by owner-occupation, it was not the working class'. However, the discrepancy might lie in the definition of class; the building society movement's view of the working class may well have been different from that used by Swenarton and Taylor. The point at which the line is drawn between the several bands of lower and middle-classes is important. Wage or income level does not necessarily denote class. Sir Frank Taylor of Taylor Woodrow said that those who bought his houses were 'The salt of the earth, the common man, the main purchasers were labourers, engineers and clerks, those earning about £5 per week' (23). There will be a fuller discussion of the findings by Swenarton and Taylor in the next chapter.

(1)There was about £900 millions in the form of shareholders funds, deposits, mortgages outstanding and around ,50 millions in cash or the equivalent. Figures from The Economist survey of 11 April 1936.
(2) E. Cleary, The Building Society Movement (London,1965), p.184.
(3) Private Enterprise Housing. Report of the Private Enterprise Sub-Committee of the Central Housing Advisory Committee of the Minister of Health, (H.M.S.O.,1944), p.14., para 44.
(4) The National Builder (House builders Supplement) (February 1937), p. 1. John Laing the builders were to build very few lower priced homes for their own account but built large numbers for local authorities.
(5) From a letter dated 9 August 1993 to the writer.
(6) Report of the Departmental Committee on Housing,( July 1933),Cmd. 4397, PartIV,para 97, p 43.
(7) From the analytical survey of the 108 top societies in The Economist of 11 April 1936.
(8) Illustrated Carpenter and Builder, 12 April 1935. p. 828.
(9) From an advertisement in the News Chronicle, (February 27 1932), p. 9.
(10) J. Burnett, A Social History of Housing 1815-1970 (London, 1986), p. 252.
(11) From advertisements in the Daily Mail of 20 June 1931.
(12) A. Jenkins, On Site 1921-1971 (London, 1971), p. 20.
(13) The Economist, 11 April 1936, p. 19.
(14) The Economist , September 1939, p. 18.
(15)From their accounts in Companies House and also M.Cassell,Inside Nationwide: One Hundred Years of Co-operation (London, 1984), p. 51.
(16) ibid., p. 50.
(17) S. Price, Building Societies, Their History and Origins (London,1958).
(18) From a conversation between the writer and Fred Pay in February 1994. Pay spent forty-five years with the Halifax Building Society at a senior management level.
(19) Sir Harold Bellman was the only main figure within the movement to be knighted except for Edwin Hill who was the chairman of the largest society and as such might be expected to receive an honour. The former general manager of the Burnley, Ken Rushworth told the writer that Bellman was only knighted as he had 'nursed' Ramsey McDonald's seat for him in Scotland when he was ill and not for his services to the movement.
(20)The Times and Country Life of the period contain many advertisements from solicitors offering mortgages.
(21) A. Offer, Property and Politics 1870-1914: Landownership, Law ,Ideology and Urban Development in England, (Cambridge, 1981), p.143.
(22) M. Swenarton and S. Taylor, The Scale and Nature of the Growth of Owner-Occupation in Britain between the Wars,Economic History Review,(1985), p. 392.
(23) From a letter of the 9 August 1993 to the writer.