The objects and purposes of building societies are twofold – first, to provide a common savings pool from which members can finance the purchase of a home; and, secondly, to encourage thrift. This latter aim is furthered by the investing member having a safe and attractive method of regular saving, while the borrowing member attains a similar goal by a regular reduction in his loan indebtedness.
In New Zealand there are two classes of societies allowed by the Building Societies Act, namely, permanent and terminating. Of these, 54 are permanent and 18 terminating. The constitution and conduct of a building society are strictly regulated by the Building Societies Act 1908. Its rules, and any amendments made from time to time, must be approved by the Registrar of Building Societies. The rules must provide for the audit of the accounts, the number and appointment of its directors, and the manner in which they are to be remunerated, the power to accept deposits, and the repayment to members of share subscriptions. Officers of a society are required to give security for money passing through their hands. This is usually given by a fidelity bond issued by an insurance company.
A building society raises its funds by subscriptions from its members. These funds are used to make advances to its members secured by first mortgages on freehold or leasehold land, or interest therein. Seldom do societies lend on vacant land, and societies cannot own land or buildings except for the purpose of their office accommodation. Repayment of a mortgage is usually by fortnightly or monthly instalments, which includes interest in the case of a permanent society. Loans in terminating societies are either free of interest or by auction or tender, and the fortnightly or monthly instalment represents a sum which will repay the loan and premium (if any) during the term of the mortgage.
A permanent society is one which has not, by its rules, any fixed date or specified result at which it shall terminate. Permanent societies consist of shareholders, depositors, and borrowers. The amount that any society can take on deposit is restricted to 75 per cent of the amount of its mortgages. This is a safeguard to depositors in times of stress. Profits are distributed to both capital and investing shareholders after making reserves. Borrowers do, in some cases, get a rebate on the interest paid by them.
A terminating society is one which, by its rules, is to terminate at a fixed date, or when a specified result is reached. This is usually conducted by means of the group system, which requires that when the specified result or period is reached, the group winds up and refunds of subscriptions, together with the profits, are made to its members. Thus, in a terminating society, the profits are shared by the members, less of course the cost of management. The life of these groups usually runs from 20 to 25 years from commencement.
Terminating societies have the larger membership in New Zealand, as is shown by the following table:
Statistics for 1962–63 show that there were in New Zealand—
54 permanent societies with 34,237 shareholders and investing capital and shares £13,357,260 and
18 terminating societies with 280,733 shareholders with investing shares of £34,633,334.
Minors may become shareholders in a building society, but their parents or guardians must act for them until they attain the age of 18 years. They cannot, however, generally execute mortgages or purchase property until 21 years of age.
Many building societies recommend borrowers to insure their lives for the amount of the mortgage. This insurance decreases as the amount of the mortgage decreases yearly. The premium may be a single payment by the borrower or added to the mortgage and repaid over the term of the mortgage. The premium based on the age of the insured is very low – for example:
For £1,000, 16-year term, the premium payable fortnightly is:
| Age | s. | d. |
| 25 | 1 | 0 |
| 30 | 1 | 1 |
| 35 | 1 | 5 |
| 40 | 2 | 2 |
Savings bank departments are operated by several societies. They are subject to Government restriction on the amount they may accept by way of ordinary deposit and the amount of savings bank deposits. Clients may make deposits and withdrawals on similar lines to the Post Office Savings Bank.
Each society functions as an individual establishment with its own particular features, but is affiliated to the New Zealand Building Societies Association, which body attends to building society problems at national level.
by John Laurence Arcus, Secretary, New Zealand Building Societies Association, Wellington.