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.