House Purchase Post: Part 1

So much to write on this, so I’m just going to talk about the money side of buying my house first.

Bloody ‘ell, BTL

The plan had originally been to sell my buy-to-let (BTL) flat to fund my house purchase. However, my flat is caught up in the cladding polava and unless I wanted to make a massive loss by selling it to a cash buyer, that route was closed to me.

So plan B was to attempt to remortgage, to release some equity.

Alas, the lender valued my flat at a big fat ZERO as it did not conform to the new fire safety regulations.

To pile on more financial stress, the service maintenance charges on my BTL for the past year have trebled, to pay for a Waking Watch.  Although I believe a new fire alarm system has now been installed resulting in the WW no longer being employed, I have yet to see what the final bill will be to ensure that my flat will fully comply with regulations and secure the coveted EWSI certificate which will allow me to sell the property. I have already been advised that us leaseholders will not qualify for full government rebate, so await with dread on how much more I will have to pay.

Since I couldn’t release any equity, I had no alternative but to accept the loan from my parents and dip into my Future Fund.

The BTL has been a good investment but I will very likely be selling it – receiving rental income isn’t part of my FIRE plan. Assuming prices haven’t plummeted for such properties in the area, the equity I get from the eventual sale should repay the family loan in full and might even fill the hole that has been made in my Future Fund.

Dead Pledge

As per a comment I made on Monevator’s recent post which suggested that making payments on a mortgage was a form of saving, it was with some trepidation that I took on board the biggest debt of my life (on my own) at an age when many are (or close to being) mortgage-free.

At my age (the wrong side of 50), the length of the mortgage term was restricted – I certainly wasn’t offered 30-year deals!

As I went through the application with the mortgage advisor (which was all done online and over the phone, versus the face-to-face interview at the building society which I had for my first mortgage, armed with paper copies of my bank statements and payslips!), I was surprised at how much I could borrow on my own.

Some would say ‘get the biggest house/mortgage you can afford’ with these (current) low interest rates, but since I’m still aiming for FIRE, I was mindful of the size of the mortgage payments. I didn’t want to feel like the mortgage was a noose around my neck, it needed to be affordable and I needed to be comfortable with it.

So in the end, my budget didn’t cater for the biggest house I could get and I ended up with a mortgage with a LTV (loan to value) of 64%, which gave me affordable repayments and a bit of spare which I will need to split between saving for FIRE and a fund for future ‘house renovations’.

There will be some who will think that the deposit I made should have been smaller, that I could have invested the extra cash and made the most of investment returns. I did consider that but knowing me, it would have just caused me both investment stress and stress over higher mortgage payments so I did what I did for better peace of mind.

Anyway, I’m on a 2-year fixed repayment mortgage, 1.25% interest. It makes my mind boggle that the interest rate for my first mortgage over 20 years ago was 8% – let’s hope we never see those kinds of numbers again!

My mortgage term is 22 years so I’ll be in my early 70s when it’s paid off (earlier of course if I make overpayments).

How do I feel about carrying such debt into my old age?

I didn’t feel comfortable with it at first but it’s likely that when my DB pension kicks in at age 65, the 25% lump sum can more or less clear the balance of the mortgage, so I will have options when the time comes.

My mortgage payments will be more than what I am paying my parents for living in their house but at least my utility bills will be lower, which will provide some offset. However, until my parents sell their house, I will be paying 2 lots of bills but I chose to do this rather than be caught in a chain.

My savings rate will unlikely to ever reach its previous dizzy heights but I’m resigned to this – I think if I can achieve a savings rate of around 10%, I will be happy with that until things settle down cost-wise. Need to be smarter with some of my expenses and hope that the stock markets continue to do their thing for my portfolio.

Other House-Buying Costs

I wasn’t planning to get my property during the stamp duty tax holiday so I didn’t join the frantic and desperate race to try to complete before the end of July, although there had been a chance to complete before the end of September to pay a reduced amount. Sadly, this didn’t happen (the seller and then my solicitor were on holiday so three weeks were lost) so it was with a grimace that I paid out over £7k in stamp duty – ouch!

With some time on my hands before I move in, I decided to get all the rooms redecorated/painted, new carpet, floor tiles and fitted wardrobes.

Getting people in to do all the work during such a busy period has been a right pain and the labour costs have not been cheap – I feel like I’m just bleeding cash and will be so glad when it’s all done.

I do have an actual moving in date set but still so much to do (and pay for) before that happens but at least things are moving forwards.

 

Plans are Things that Change

Thus goes the quote by Fujio Cho, the honorary chairman of Toyota.

I’ve had a lot on my mind lately, not just the bubble of stress I’m beginning to feel, with my boss leaving next month but about something else.

It’s resulted in me sticking my head in the sand, procrastinating. Wanting to hide.

Me, lately.

It all started with various conversations with my Mum, the gist of which you will get in the below summary of said conversations:

Mum: “I’ve thought about it and I definitely want to sell the house asap.”

Me: “What house?”

Mum: “The house you’re living in. I told you about it earlier in the year.”

Me: “No, you didn’t tell me.”

Mum: “Oh, it wasn’t you then, it must have been your sister. Did she not tell you?”

Me: “No. She’s been really busy sorting out her own house.”

Mum: “Well I want it sold. You need to move out and get your own place.”

Me: “It’s not a great time now. I can’t sell my flat as the cladding issue hasn’t been sorted. How about next year?”

Mum: “I don’t want to wait that long, just get it done. Since you can’t sell your flat, do you need a loan then?”

As a reminder, I currently live on my own in our old family home. I pay nominal rent to my folks but have been responsible for the upkeep and repairs of the house. Over the years, the house has been a UK holiday home for close members of the family to stay in when they are over on holiday.

I always knew I would need to move out sooner or later – later rather than sooner though, according to my plan.

My FIRE plan has always accounted for the fact that I would either be renting or with a mortgage once I’d FIRE’d. Originally, I planned to continue to receive rental income from my BTL property upon retirement, but I came to realise that I would find it too much hassle, so I decided that, at some point, I would sell it and use the equity to buy somewhere to live.

Cladding Schmadding

As I wrote here, my flat is caught up in the cladding safety issue. It doesn’t actually have any dangerous cladding but building inspections have revealed that it doesn’t meet the new fire safety regulations. Until this is rectified, I (and the other leaseholders) must pay for a Waking Watch (fire wardens), which has nearly tripled the service charges we have to pay, and we will also have to pay for the building to be made safe, whereby a safety certificate shall be awarded.  I cannot sell my flat without such certificate.

Since I can’t sell it, I will have to borrow more against the BTL but am uneasy about this because I still don’t know what the final property bill will be yet. The rental income I’ve been getting over the years has been put aside for ‘property purposes’ but this is now earmarked to go towards the final as-yet-unknown cladding bill. I dread to think what that might be.

Because of these factors, it’s looking inevitable that I’m going to have to use part of my Future Fund to fund my house purchase.

The thought of it makes me feel sick and depressed.

Feeling Low

This has really been getting me down. My Future Fund is not meant to be used now.

Yes, I acknowledge this is a first world problem, not a ‘real one’. I have the funds to use, so what’s the problem? The problem is that it’s messed up my plans, and I feel like I’m starting to spiral out of control.

I need to get my head around everything, adjust my plans (and my thinking) so that I feel like I know what I’m doing again.

Why Now?

I’ve always known that at some point in the future, my folks would want to sell the house, but why now? With my Dad’s heart issues one year which resulted in a cancelled trip and with no travel being allowed in 2020, it’s now been over 4 years since they were last in the UK. They used to have regular holidays, lasting several months, enjoying the British summer (such that it is), and avoid the worst of the scorching and humid summer months in the far east.

Clearly, absence has not made the heart grow fonder, and for some reason, their friends were always telling them to sell up and transfer the funds to Hong Kong (though what business it is of theirs, I don’t know…).

I think the pandemic has accelerated the timeline of the house sale. I reckon had my folks been able to make their trip over to the UK last year, I don’t think they’d be wanting to sell so soon.

However, it’s probably now unlikely that my Dad would rush to make the trip over at his age now – the effects of lockdown have made him years older – perhaps one more trip, perhaps no more, I don’t know, so I guess it makes sense for them to get rid of their last asset in this country.

Would I not want to buy the family home? Much as I love the house, it’s too big and way out of my budget and if my folks were to sell it to me cheaply, it would cause sibling friction and that’s best to be avoided at all costs.

Bank of Mum and Dad

I tried explaining several times about the cladding issue with my flat and each time, my Mum’s answer was that the issue would be resolved with her giving me a loan.

The first (and last) time I borrowed from my parents, I was 20 years old and the loan was used to buy my first car.  This loan was paid back (as are all loans to family members).

I had used my own money to purchase my first property (the one I had with my ex), so it doesn’t quite sit well with me that in my 50s, I’m left with no alternative but to borrow from my folks to buy a house. I’m sure this might be normal for some people but it just doesn’t feel that way to me.

Perhaps it’s a bit of foolish pride – I would have much preferred to have done this all on my own.

Plan of Action

As already mentioned, I need to take action to bring some semblance of control back.

I don’t have a lot of cash in my Future Fund, just some in premium bonds.  A week ago, (randomly timed before the markets started to wobble all over the place), I cashed in on some profits in some of my ISA investments, in preparation for when I might have to use the cash. As a mainly buy and hold investor, it was hard to sell but needs must.

From this month, the chunk of money I normally invest in my ISA will instead be lumped into premium bonds to add to my cash pile. I can’t bring myself to stop investing entirely so I will leave the small standing orders that pay into my ISA (and my SIPP). I’ll also continue to invest any extra bits of cash from my side hustles and also carry on investing any dividends received.

So, when it comes to dipping into my Future Fund, the premium bonds will be used first, then uninvested cash sitting in the ISA, then finally as a last resort, sell more equities if required. Or should I sell the bonds? Not figured that out or looked into that yet.

Remortgage

I’ve contacted my BTL mortgage provider and have received confirmation of the amount extra I can borrow, which I’m (mostly) comfortable with. However, as this isn’t the full amount of equity I could have realised from my flat sale, it’s unlikely to be a big enough deposit I would want to put down on a house.  So it looks like a family loan will be required.

However, once I am able to sell my flat, I will be able to pay the loan back in full.

House Hunting

I’ve registered with various estate agents and looked online myself – houses are being snapped up really quickly and I’m finding that some appear on websites already Sold STC or Under Offer.

Due to social distancing, for houses I’ve wanted to view, I’ve been placed on a waiting list as I guess viewings have all been restricted.

I’m sure something will come up. I might not be able to stay in the area as house prices are mostly out of my budget but who knows, I may be lucky and the right property will come up and I’ll be quick enough to pounce.

Control

Despite how it all seemed at first, I do have an element of control as I’m the one who will need to put the house on sale and I won’t be moving out until I’ve found a place to buy. The ‘chain’ also only impacts the property sale, not on the property purchase, since the funds to purchase the latter are not reliant on the sale of the former.

I reckon I will need to reconsider my costs (and my lifestyle) as I may have to tighten things up, while I adjust to change. My anticipated mortgage will likely be marginally more than what I pay my folks for rent right now so no material change there – it’s the initial costs of a new home which are going to be the killer, plus any other house costs which might have to be sorted once I’ve moved in.

And once I’ve settled in, a kind of normality shall resume so that I can continue on my FIRE journey in earnest.

Phew!

I feel a bit better for writing that.  The uncertainty of it all still scares me but things will become clearer in time. I hope it will soon feel like it was my idea to move in the first place and at that point, I think I will feel a lot more comfortable.

Some heart-felt thanks go to @indeedably who reached out, provided me with a friendly soundboard and ear, and made me see some of the positives, where I could only see the negatives.

Onwards and upwards.

Crowdfunding – Two Sides

Apart from setting up some direct debits for various charities, I’ve not withdrawn or used any of the profits that I’ve made via matched betting. I’ve just let the funds accumulate across my current account, my exchange accounts and the various gambling accounts.

In June, I finally invested £100 of the profits but I opted to do something different. theFIREstarter’s post reminded me of something that I had looked at previously but not gone for – I decided to invest a little in property crowdfunding.

Property crowdfunding “allows people to invest in buy-to-let properties without having to take on the additional responsibilities that come with being a landlord”. So says the blurb. Anyway, here’s a better explanation of what property crowdfunding is all about.

If I had a wedge of spare capital, I would probably be tempted to buy another little BTL property but I don’t, so property crowdfunding interested me when I first heard about it.

Some of the property crowdfunding websites required a minimum of £1000-£5000 investment but I went for Property Moose*, where the minimum investment is just £10.

propertymoos

So basically, you pick an available property from the website, invest your money with a load of other people to buy ‘shares’ in the property. When the property is tenanted, you start earning ‘monthly rental’ based on the number of shares you own.

Rental income seems to vary from around 5% – 7%. With Property Moose, most properties tend to be in the north/northwest, with only a few in London. Said properties tend to be ones which require renovation and you are able to see the progress of the renovations via photos posted on the website.  At the end of the fixed investment term (ranging from 1-3 years), the property is sold and proceeds are shared amongst the investors (subject to their share and less costs and expenses), although it appears that investors are able to vote to retain the property for a further year.

Property crowdfunding is not without its risks – I view it along the same lines as P2P  – still pretty new, regulated but not covered by the FSCS (Financial Services Compensation Scheme) so I’ll not be investing a huge amount in this.

Since that initial investment, I’ve chucked some more matched betting profits at Property Moose.  I think there’s still some life left in investing in property (yes, despite Brexit and the doom and gloom about property bubbles) so will be continuing to build on this investment bit by bit and will update with the rest of my portfolio.

Another Side to Crowdfunding

I came across Kiva a while ago but decided to revisit when I was looking for charities to support recently.

kiva

Kiva is a charity platform which aims to support people from poorer countries via crowdfunding loans. Deki is another platform, which I hope to have a look at again.

So how does it work? First, a borrower applies for a loan. Usually, loans are to start or grow a small business, used to go to school/further education or simply to be able to live in better conditions.

The loan, after it’s approved is crowdfunded by other lenders, in $25 increments.

Repayments of the loan are made on a monthly basis and such repayments can then either be withdrawn or used to fund other loans.

My first Kiva loan was to a woman from the Philippines who wanted to build a sanitary toilet for her family…. such things that we take for granted…

So, different sides to crowdfunding – I hope to make some money on the one side, and hope to help improve someone’s life a little on the other.

[*Referral Link – edited 16/09/16]

My Rental Property – Part II

As with Part I, I stress that this is just an account of what I did (as a complete novice) and that there are most likely other/better/cheaper ways of doing what I did!
So having bought my property, I needed to get it ready for tenants and start being a landlord.

I got my Keys!

The first thing I noticed was that the post box for my apartment (to which I had no key as it wasn’t part of the set I was given on handover) was damaged. The likely explanation was that the previous owner, having lost their key, had tried to crowbar it open, thus damaging the front panel. I had a locksmith come open it up properly, fix the panel and fit a new lock.  £125 bill after less than 24 hours – hmm, not a great start!

The box itself was jammed full of 2 years’ worth of fast food flyers, spam post and lots of red unpaid bills

So I arranged for the water and electricity meters to be read, and contacted the local authority about the unpaid council tax bill.

Residential Management

As with most apartments in this country, my property is leasehold, not freehold.  The ultimate owner of the property charges me annual ground rent and also employs a residential management company who is responsible for the maintenance and repairs of the entire block of apartments, eg cleaning, care-taking duties, lift maintenance etc. They in turn charge each leaseholder (including myself) a proportion of such maintenance and repairs in the form of an annual invoice, accompanied by their estimated annual budget. Sadly, said residential management company certainly lives up to the reputation that such companies are largely incompetent and charge high fees.

As well as unpaid utility bills, when I took over the property, there were also unpaid residential management fees. Dealing with the company (I don’t even want to link to their website here to give them any sort of promotion) was like pulling teeth! They are one of those companies that have a premium telephone number and it is guaranteed that you will be put on hold every time you call them no matter how simple the request – that is a fact. For two years, they tried to charge me for a car parking space that I didn’t have – this has finally been resolved after numerous emails (not calls!).

Anyway, my solicitor sorted out the unpaid bill so I was finally registered with them as the new landlord.

Landlord Safety Obligations

Gas – If supplied (not in my apartment), landlords must have a gas safety certificate.

Electricity – An electrical safety certificate isn’t currently a legal requirement but ensuring the electricity is safe in your property is, so I had an electrician in to test all the appliances, sockets etc. He charged £72, but the highest quote I got was over £240 – definitely worth ringing round for quotes!

Fire/Smoke alarms – one must be fitted as standard and it’s recommended that a mains operated smoke detector be fitted (as it’s been known for tenants to remove batteries when detectors start bleeping, eg if they want to smoke in a no-smoking building or if the batteries start running low…very stupid I know but some people…). There was one fitted already in my apartment and I had the above electrician check that it was working.

Energy Performance Certificate – not really a safety issue but you’re required to produce one of these as a landlord. You should get it from the person you bought your property from.

Furnished or Unfurnished?

Somewhere in my research, I read that it’s often easier to find a tenant for furnished properties and you can generally charge higher rent for such properties (although there is a third option, ‘part-furnished’).  Also, tax wise, you get to deduct a percentage of the cost of the furniture that you provided in the property from your tax liability.
Inside my apartment!
I spent just under £2k in total kitting out the entire apartment, including installing hard wearing laminate flooring throughout (a friend’s other half fitted it), a double bed, wardrobe, side cabinet, dresser, sofa, coffee table, dining table and 4 chairs, mirrors, a couple of lamps,  vacuum cleaner, curtains and a couple of pictures/canvasses. 
Most of the furniture I got from this place that specialises in furnishing rental properties, others I picked up from Argos, B&Q and John Lewis on special offer. Note, for rental properties, all upholstered furnishings must be fire resistant, so you can’t just pick up any old cheap furniture, unless it carries the fire resistant symbol. I had to return the cushions I originally bought as they didn’t have the fire resistant label, I bought them before I read about the requirement.

So what about a Letting Agent?
Despite reading about landlords (and tenants) being ripped off by unscrupulous letting agents, I decided that I was going to employ one for full property management services. This was because I could not see myself being a good landlord whilst working in my full-time job, in a busy open office, where I can barely take, much less make personal calls (except during my lunch break). When would I have time to look for and vet potential tenants? What would happen if something needed fixing asap or the tenant had a problem? I would sooner pay someone to handle such events on my behalf. Plus, letting agents can’t all be that bad, can they?
I contacted six letting agents, choosing ones who were members of either ARLA (Association of Residential Letting Agents) or NAEA (National Association of Estate Agents).

Two didn’t bother to return my call and one didn’t have anyone available to talk to me. The other three, I made appointments for face to face meetings. I basically asked them all the same questions – I had a list on a spreadsheet where I could fill in their answers so they could be compared easily. Two of them I could see were quite impressed that I was so organised with my questions; the third one seemed a little uneasy and passed the comment “Gosh, you’ve done a lot of research!” Indeed, I had!

The letting agents* I chose in the end had competitive fees and I was most satisfied with their answers. I was able to negotiate on the initial letting fee (fixing it) but they wouldn’t budge on the removal of the fee for extending an existing tenancy – seems like this is an ‘industry’ standard fee in a (currently) unregulated industry.

My questions included: (actual fees from my letting agents in red)

– What they charged for:

  • initial letting fee (£400 – highest fee was £650, lowest was £300)
  • monthly fee (10% of rent – this seems to be average in the Northwest)
  • completing an inventory (free – highest was £125)
  • keeping a deposit (£25 – highest was £45)
  • extension of an existing tenancy (£95 – highest was £120, lowest was £75 )

– Which deposit scheme they used (Tenancy Deposit Scheme) – more on this later under ‘Deposits’.

– What rent did they think my property could secure (£450-£495 pcm)

Property management services included advertising the property (online and also on the agents’ office boards), vetting and checking in tenants, reading meters and contacting the various authorities, being the first point of contact for tenants, liaising with workmen for repairs, collecting the deposit and rent and chasing late rent as applicable.

Anyway, within a few days of my property being on their books, a tenant was found on a 12 month tenancy. What was even better was that the rent secured was £525 pcm. Happy days!

Deposits

Gone are the days when a landlord could just put a tenant’s deposit in their back pocket and refuse to pay the full amount back at the end of the agreement on some poor excuse (this happened to me as a student – apparently we didn’t clean the carpets, even though it was obvious that the carpets were already filthy when we moved in and had clearly not been cleaned in years).

All rental deposits must be registered by a landlord (in my case, my letting agent) with a government-backed deposit scheme, within 30 days of receipt of said deposit. If not, a landlord can be fined up to three times the deposit.

Any disputes are sorted via the scheme, so it’s generally fair and above board. 

Insurance

Normal home insurance is not valid for rental properties – you have to buy landlord insurance. In the case of my apartment, I don’t own the building (the freeholder does and has his own buildings policy), so all I need is contents insurance. I always obtain lots of quotes – average I’ve paid is £60 per year but the prices range dramatically – as with your own home/car insurance, check the details and only pay for what you need. You can purchase rent guarantee insurance too (to cover non-payment of rent and void periods) but I decided not to bother with that.

Tax and stuff

You’ll no doubt come across companies offering professional services to sort out “the maze of accounting and tax issues encountered in the property business”.

This is a myth as there is no ‘maze’, certainly not if you only have one property to let – perhaps it’s a little different if you have a portfolio of properties. These companies try to make out that tax for landlords is complicated so that you feel compelled into employing them to do something you can do yourself.

Keep all your receipts, invoices and bank statements – log all stuff relating to your property onto a simple spreadsheet.

Register for Self-Assessment (if you’re not already set up for this). Make sure you read the government’s website so you know what can be deducted against your tax liability, such as mortgage interest payments, letting agent fees, repairs etc. You’ll also need to have a copy of your P60/wage slip and know your tax code for the year.

Complete your self-assessment when you get the reminder – make sure you do it on time so you don’t get fined £100.

Pay any tax that is due.

See? No maze!

Fast forward nearly 3 years


Thus far, I’ve had a relatively stress-free time as a landlord – the hardest bit was all the legwork required to get it all going.  I’ve only had one void period of just under 2 weeks so far. The boiler has broken down once (I now get it annually serviced) and recently, there was an electrical problem, which my letting agent sorted out while I was on holiday.
My mortgage is now out of its 2 year fixed period and is on a variable rate of 4.5% – yes, I know, lower than the fixed rate of 5.2% I was on but who knew the interest rates would continue to drop?

Greedy?

The press is full of stories about ‘greedy’ landlords charging sky-high rents for poorly-maintained properties and ignoring their tenants’ needs.  I like to think that I’m not that kind of landlord, that I am providing someone with a good, affordable home because they are not yet (or don’t wish to be) on the housing ladder.

My current tenant (who is a teacher) has just renewed for another 12 months, at £550 pcm. I’ve advised my letting agent not to increase rent for tenants wanting to renew – why do that if they’ve been good tenants? (although if my other costs go up by a lot, eg management fees, interest rates, I may have no alternative). I’ve also dropped the rent before to encourage a tenant to sign a 12 month tenancy as opposed to a 6 month tenancy.

Although obviously not always the case, I’m of the view that if you maintain your property to good standards and treat your tenant right, your tenant is more likely to look after your property, their home but ultimately, your investment.

There – I think I’ve covered most of the points!

Like any kind of investment, BTL is not for everyone – MoneySavingExpert recently produced a handy guide here as to whether BTL is right for everyone.

I could have done with this guide in the early days, instead of going all over the internet looking for my info but I got there in the end!

(*No, I’m not getting any commission for linking my letting agent, but they’ve done a good job so far for me, so worth a mention)