Mortgage affordability rules

Interesting article from the FT about the Bank of England’s overhaul of mortgage affordability rules.

Basically instead of stress-testing applications to 3% above bank rate, lenders must now stress-test applications to 3% above their reversion rate, i.e. their standard variable rate.  For me that means my lender will now have to judge my application against a rate of 7.24% for the residential and 7.99% for the commercial.  I’ve run the numbers myself this evening and we’re definitely okay on the commercial side.  The residential – I don’t know.  I think we’re okay; they told me when I first applied that they’d lend us something like £168,500 maximum (that was taking into account the 0% card payments), but we were capped to £135,000 because of loan-to-value, so I hope that’s enough wiggle room to deal with the extra.

It occurred to me this week that I never rang back the holiday letting agency after they came for their visit last month, and as we get closer to decorating, I thought it might be a good idea to see if they had any tips for me, so I dropped them an email and the rep who’d come out to see me rang me back a couple of hours later to say how delighted she was to be taking on the houses and to have a chat.  Basically there is no fixed checklist to getting a 4* rating (which is what I’m going for) and the house doesn’t have to be completely 4* throughout, a few 3* items, as long as they’re not major items, will not lower us a grade.  Basically for a 3* think ‘Good’, for a 4* think ‘Very Good’.  Tesco crockery is fine as long as it’s Tesco Finest not Tesco Value, as it were.

It does mean I have to rethink my furnishing budget, as my plan of upcycling secondhand stuff is very likely not going to be acceptable.  I’m going to need two leather sofas, a king-sized bed, three 3ft single beds, 3 chests of drawers, 5 bedside tables, 2 wardrobes and a kitchen table and chairs (already have an oak coffee table), along with all the other stuff you expect to find in a comfortable holiday cottage, like a decent television, soft Egyptian cotton bed linen, fluffy towels, pictures on the walls for rooms that don’t have a feature wall (apparently this gets you extra points towards 4*) and everything you might expect to find in your kitchen at home.

First on the very big shopping list though is the kitchen appliances.  I sent Dougie a text the other day, as we passed him on the road and gave him a wave, to check that I was correct in my assumption that I needed to get David to lay the floor downstairs and then I needed him and David on site together for a day along with all the kitchen appliances so that they could talk layout and wiring before David starts installing the kitchen units (and I cannot WAIT for that to happen because they’ve been taking up 80% of my study since October!)

In the meantime, I am plastering on (I’ve nearly caught up with Mick now, just one more wall to go until I’m at a stop because he hasn’t finished the plasterboarding!) and after nearly three months of managing not to plaster my face, the final bedroom ceiling got me!

(The headphones are because I’ve been listening to Rob Dix’s excellent property podcast while I work – check out his website at propertygeek.net)

Full steam ahead!

I got a call back from the area rep last Tuesday saying she could come up and visit today, so the last week has been a flurry of decluttering and cleaning!  I will come clean at this point and say that the house we are trying to get the holiday let mortgage on is the one we currently live in – our existing residential mortgage will port to the house we want to buy, but we need to raise the money to pay for it against this house as Ethel’s won’t be mortgageable until the title is created.  So the visit was to assess not only Ethel’s but also our house, which is a 3-bed croft house, the same as Ethel’s, but with a separate 1-bed annexe.

I will confess, I was nervous.  The house is not currently up to standard for holiday letting, we’ve been concentrating on putting money into outbuildings, fields and fencing, so we still have the carpet and in some case the decor of the previous owner, who’d not lived here for two years before we bought it nine years ago.  But I was able to walk through the house and explain exactly what we’d do in each room, and a couple of rooms we have done over, like the dining room and the bathroom, so she could see what our idea of a finished room was like.  Then we went down the road to Ethel’s, where she exclaimed over the views and approved of all our plans for down there as well.

We had some lunch and she went through how their pricing and booking system works and I was able to pick her brains about all sorts of useful things (note to self: turn the annexe bathroom into a wet room, buy leather sofas rather than loose covers for ease of cleaning if we’re going to accept dogs, which we will).  Then it came to the crunch time – what rental estimation would I get?  The magic number we needed on our house and the annexe was £9,600 between them, after the agency fees.

‘Remember, these are conservative estimates,’ she warned me, as she took three computer printouts from her clipboard.  ‘They’re based on the location of the properties, what we get for similar properties in the area, and it’s based on a mix of high, mid and low-season weeks.  I’ve based it on 25-27 weeks a year, but we’re achieving 35-40 in this area at the moment, thanks to the North Coast 500.  I’ve done them based on you getting a 4* Visit Scotland rating, which from the sound of everything you’ve told me, you will.’

So what were the scores on the doors?  After agency fees and VAT, it came out as follows:

  • One-bed annexe – £8,893 a year
  • Our house – £11,967 a year
  • Ethel’s house – £13,344 a year

!!!!!!!!!!!!!!!!!!!!!!!!!!!!  I nearly fell off my chair!!  More than double what we needed on our home to go ahead!  So now it’s full steam ahead with the mortgage application for the holiday let mortgage and getting approval to port our mortgage to the new house, and back to the plastering so we can get Ethel’s up for rent ASAP and then start work on home.

Just to put the cherry on the Bakewell, I had an email from a journalist client this morning asking if I could transcribe an interview for her this afternoon so she could get it written up and filed overnight.  I emailed back to say I couldn’t start until around 3pm and explained why.  She wished me luck, so I told her how it went when I returned her file this evening.  She’s offered to pitch a piece on the area to a national newspaper she writes for regularly and mention the houses in it when we’re up and running, which would be absolutely amazing publicity.  I am feeling very, very lucky tonight.

Sit rep

The bad news is that the mortgage company liked us but didn’t like the location of the house; they felt it was too remote to make a good holiday let!  I asked our broker to point out that was kind of the point and he sent them a link to this recent Conde Nast Traveler review of the North Coast 500, saying it “may be the best road trip in the world”, but they decided it wasn’t for them.  At this point, the broker said that if we really didn’t want to do it as a normal buy-to-let, he was out of options, so I spoke to a commercial holiday let specialist broker, who said that his fees on such a small mortgage would be uneconomic, but there was only one mortgage company he knew of which would do a loan of that size against a holiday let in Scotland and I should just ring them directly.

Several phone calls later, they’ve indicated they’re willing to lend subject to us putting in a full application and getting written confirmation from a holiday letting agency that our house will make £9,600 a year in rentals net of agency commission.  Several more phone calls and I’m waiting for the local area rep for one of the UK’s biggest companies (just under 20,000 holiday cottages on their books) to get in touch to arrange a no-obligation visit – I think it’s actually the perfect time for her to come and have a look, because I can ask her to assess Ethel’s house as well, and what she tells me will dictate, to some extent, how much money we invest in the furniture.

I’ve also found a very helpful holiday letting forum, Lay My Hat, which is proving to be a fantastic resource for finding out about where to buy good-quality bed linen and towels without breaking the bank, what to provide in kitchens and so on.

Meanwhile, down the road I’m still chipping away at the plastering and after a good 4.5 hour session today, the downstairs is pretty much done.  Mick will sand it down tomorrow (this is his punishment for accidentally putting a tapered edge piece of plasterboard on an external corner, leaving me with an absolute crater to plaster over!) and then it’s just a case of filling in any little holes with a Go Outdoors loyalty card (nice and flexible!).  I’ve started plastering the small bedroom upstairs, but we need to get a few more sheets of plasterboard so Mick can finish off the gable ends in the other two bedrooms before I can do them.  He’ll give Rembrand a ring next week and fingers crossed they’ll be coming west and can bring them out.

Lurching forwards

I had a fun time a week ago Friday being a chimney sweep assistant – two and a half tubs of soot were removed and Calum is very grateful that he’ll never have to sweep the kitchen chimney again.  Apparently it’s marginally less awkward without the Rayburn in front of it, but not much.  He ended up having to climb up on the roof and sweep downwards from the chimney and then went into it with a much smaller brush through the access hatch on the outside of the house, attached a drill to the end of the rods and power-swept it all the way down.  £70 for a job well done on all three chimneys!

I was away last week and hoped that David would have been able to start, but it’s all come to a bit of a grinding halt again and the only sign of progress is three rows of slates laid on one side of the roof and lots of holes appearing in joists and walls as Dougie tunnels his way through the structure of the house with his cable runs.  The roof can’t progress until the rooflights are resized and Dougie can’t get too much more done until the studwork is in.  However, we’ve managed to track David down and he says he’ll be on site probably Wednesday, might be Thursday (I’ve been told this probably means Thursday!).  If he can spend a couple of days sorting out the bits Pete needs him to do for the roof and putting the studwork in, then we can get quite a long way down the road before we need him back again – I think we’re then okay until we need him to lay the floor over the underfloor heating, as Mick is intending to do all the insulation fitting and plasterboard work himself.

It’ll be good for Mick to get cracking on it again, actually – he’s been loving working on this one so much, that he’s now gung-ho to do another.  And look what I saw online today…

203 Talmine

This is about 20 miles west of us, so not exactly just up the road, but it’s just over the road from one of the north coast’s prettiest beaches, Talmine.  It’s derelict, but someone has drawn up plans to turn it into a one-bed cottage and the asking price is £22,500.  I’m sure it’ll be snapped up by someone before we’ve finished this one and sorted out the finances for the next, but if I’m going to have a stable of holiday cottages, this would be a perfect addition.

Hey big spender

I had to write the first big cheque last week (well, the first one since the one I wrote for buying the place, which was a whopper!), so I thought it was probably time to put my cards on the table and share my budget.

20160603_100304

There are really two parts to the budget: what’s needed to get it to the point where it could be sold or rented and what’s needed to furnish it to turn it into a holiday let.  Here are our figures.

Item Estimate
Roof & stonework £16,000.00
Electrics £4,655.00
Heating & burner install £7,000.00
Joinery £5,000.00
Kitchen units £3,000.00
Downstairs flooring £1,600.00
Carpets £750.00
Plasterboard & insulation £2,000.00
Skirting boards £200.00
Kitchen appliances £2,000.00
Switches, sockets, light fittings £500.00
Interior paint £500.00
Exterior paint £1,000.00
Shower tray & screen £700.00
Shower £400.00
Woodburner & kit £1,500.00
Windows and door £5,000.00
Door stripping £400.00
Miscellaneous tools £2,500.00
Bathroom tiles £250.00
Garden/fencing £2,000.00
Interest, council tax, electricity £3,500.00

Total: £60,455 *gulp* And we’re actually already £2,720 over the roof budget because of the extra work to the stone. On the plus side, the house and surrounding fields were valued at £77,500 on the home report (the rest of the value being assigned to the other croft) and should be worth in the region of £150-160,000 once we’re done, so we’re still just about in profit.

On the furnishings side..

Beds x 4 £750.00
Mattresses x 4 £1,300.00
Sofas x 2 £1,100.00
Kitchen table & chairs £800.00
Coffee table £200.00
TV unit £200.00
TV £300.00
Wardrobes x 3 £750.00
Drawers x 2 £500.00
Bedside tables x 4 £500.00
Pots, pans & crockery etc £600.00
Cushions, pictures etc. £500.00

Total:  £7,500.  I’ve priced up for mostly new, but am hoping I can save some money by buying good-quality second hand – browsing the local Facebook for sale group, I’ve already seen a really nice oak single bed frame that would be perfect for the small bedroom for £45.  A friend of mine recently furnished an entire rental property from the weekly furniture auctions at Dingwall and has a teenage niece who’s got the long summer holidays coming up who is very, very talented at smartening up bargain buys, so I’m hoping she might be employable for a few days!  The one thing I refuse to buy second-hand are mattresses.

We’ve also agreed a £5,000 contingency, bringing the overall grand total potential spend to an absolutely eye-watering £72,955.  We have enough cash, from savings and 0% offers, to get us to the house being more or less finished, but not the garden – so I need to crack on with the decrofting application for the house site to make sure that as soon as there’s a working kitchen and bathroom in place, I can get on with a mortgage application to release money to pay back the 0% deals as they expire and put the final touches to it so it can start earning its keep.

Demolition Sunday

A phone call this morning from Dougie the Electrician, to go through the list I’d sent him of what I thought I wanted, electrics-wise, in each room.  In the main he agreed and of the things I’d asked his opinion on, thought that putting a connection to the satellite dish and a wired internet connection into each bedroom was a good plan, but as it was going to be a rental, wouldn’t bother with wiring the place for sound.  He also suggested that I put a smoke detector into each bedroom instead of just the hall and landing, which I thought was a good idea, as I’m sure legislation will eventually require it (at the moment, hall and landing would be sufficient for a three-bedroom self catering cottage).  He’s now going to price everything up and get a quote back to me.

I’ve had to work today 🙁 so Mick headed down the road to destroy a bit more house.  The internal doors are now all removed, ready to be thrown into the back of the truck and driven south (probably to Nairn, I need to get a quote) for stripping back to the original wood.

156 armadale - misc - doors

We wanted to see what was behind those enormous window sills in the living room and kitchen, wondering if we could get enough space in the kitchen one to put the table there. So he broke open the living room one today and this is what he found:

156 armadale - living room - 3

Lots of breezeblocks, which must have been put in when the window was enlarged in the ’80s, but see those two blocks on either side?  The *perfect* size for two small window seats – another job for David the Joiner, I think!  Boxed in with some nice oak, a comfy padded seat on the top and a coaster on the windowsill for a coffee mug or a glass of wine, it’s going to be a nice spot to sit and enjoy the view.

Then he moved into the kitchen and broke out the pantry cupboard.

156 armadale - kitchen - 2

156 armadale - kitchen - 1

It’s amazing what a difference just taking off the door and removing the shelves has made, the room looks so much bigger.

A good week’s work

Mick and I have been cracking on with more panelling removal and we’re making slow but steady progress.  Pete the Roofer was going to bring David the Joiner round for a look this week, but Pete’s wife (who works with Mick) passed on a message that David has the lurgy that’s going round (or man-flu, as she put it!), so hopefully he’ll be recovered soon and able to come round and size the place up.

One of the nice things about spring starting to spring is that flowers are popping up all over the place outside:

156 armadale - outside 2 156 armadale - outside 1

Inside, we’ve depanelled the dormer window in bedroom two and found this – I think the initials may stand for Harry Macdonald, Ethel’s husband’s uncle (if I remember correctly), who left the house to her husband.  (EDIT:  Thanks to my friend Elizabeth, it may also be Hughie Mackay, her mother’s cousin, a joiner who worked on a lot of the houses in the village.)

156 armadale - bedroom two - 8

It’s amazing how much more space there is with the panelling taken out of the top of the dormer window alcove – that thin piece of wood was only to fix the panelling to, so hopefully we can leave it open and maybe put a small armchair in there for a quiet reading spot.

156 armadale - bedroom two - 7

One unwelcome find in this room (and it’s not very clear on the picture, but trust me, it’s there) was woodworm.  Lots of it.  On all the roof beams on the west-facing roof.  It’s live as well, a bit of sawdust came out of the holes when I banged the beams with a hammer, so that’ll all have to be soaked with treatment stuff.

156 armadale - bedroom two - 6

It was when I was working in this room and Mick was working in the little bedroom next door that we realised we could hear each other so clearly that we could have a conversation in normal voices, despite being in separate rooms.  As our target holiday guest is a family with young to teenage children, we thought that Mum and Dad might not appreciate the lack of soundproofing at bedtime (for any number of reasons!), so we stripped off some of the panelling on the internal walls to see what was inside.  Answer?  Sweet nothing – that wood is the back of the panelling on the other side, so we can’t take down both sides or we’ll remove all the internal walls!

156 armadale - bedroom two - 5

The only other thing we’ve done this week is break into the living room fireplace – Mick has done a great job and it looks like it’s been filled in with concrete and bricks, so we should be able to enlarge it for the woodburner fairly easily.

156 armadale - living room - 2

Now that’s a marketing shot!

So I think I can add another plus point to all the wonderful reasons that a potential holiday-maker might want to visit Ethel’s House when it’s done – I got a tip-off from a friend on Facebook that the Northern Lights were strong tonight (they were apparently amazing last night, but we had cloud), so popped down the road with my camera just on the off chance that I could get a good shot of them with Ethel’s House in the foreground.  I now can’t feel my fingers, but I think it was worth it!

Ethel's House - aurora-March 2016

Note to self: I must take some in June as well, when it’s still light at midnight, although they won’t be anywhere near as spectacular as this one.

At a crossroads

Still in Crofting Commission limbo here, but I thought this house turnaround a few miles away from me was worth a post.

strathy-red house

This house, at the crossroads in Strathy, came up for sale back in May 2013 – don’t know what the asking price was then, Property Bee isn’t telling me (from memory I think it might have been offers over £70,000), but it was dropped to £65,000 in February 2014 and then fixed price £55,000 in December 2014.  It sold the following month, according to the Registers of Scotland, for £45,000 in January 2015.  The original listing can still be seen on Rightmove.

Anyway, they spruced it up and I’m assuming fixed the many, many issues in the home report, and have been running it on AirBNB as a holiday let for the last year, but it’s now for sale again, this time offers in the region of £110,000. I shall watch this one with interest.

The Great Hot Tub Debate

One of the long-running arguments in this house about just how high-spec we’re going to make this holiday cottage has been centred round a hot tub. My husband thinks it’s an absolute essential. I’ve been pointing out that since we’re on the north coast of Scotland it’s likely going to be (a) raining, (b) blowing a gale, (c) freezing, (d) midge city.

seaside-694378_1920

However, today he came home with what might just be a killer blow to my anti-hot-tub sentiments.  A friend of his is looking at buying a holiday cottage further south, in Aviemore, and has found that houses with a hot tub can command a premium of £200-250 a week over ones without.

That’s not a figure to be sniffed at, so I did some research and it does seem that hot tubs are pretty in demand for holiday homes – I was wondering if the extra income would be negated by lower occupancy, but that doesn’t seem to be the case, or at least not significantly so.  I also considered the fact that Aviemore is the hub of winter sports in the Highlands and the tourists it attracts are sporty, outdoor types who would appreciate a soak at the end of a hard day out in the hills, but then thinking about my target market for this house, which is a relatively high-income couple with children looking for somewhere they can surf, walk, mountain bike, play on the beach etc. – it actually describes one of my brothers-in-law’s family to a T and they absolutely adore their hot tub.

I’m guessing ‘watch the Northern Lights from the comfort of our hot tub’ might be a pretty good selling point.  Next time I’m down in Inverness I’ll take a detour to Nairn and go and talk to our local dealers/installers.