We’ve been on a bit of a hiatus with Ethel’s as my time has mostly been taken up dealing with mortgage companies. We’ve hit a snag – our current residential lender has decided it won’t port the mortgage after all.
Truth be told, I’m not terribly surprised. They’ve been closed for new business for years, have a dwindling number of mortgages on their book, but still have to maintain a staff to deal with us. When I rang them up to go through the process, they kept having to put me on hold to find someone who could clarify points, because it was so rare that they ever had to do this. To cut a very long story short, they put all the numbers into their computer, crunched it about a bit and announced that we couldn’t port the mortgage because their system said we couldn’t afford it.
Now, I know things changed in the mortgage market in 2014, but we were on a combined income of about £50,000 when we moved up here and they were completely happy for us to borrow £145,000 interest only, with a monthly payment of £737 because our deal of base rate + 1.1% worked out at about 5.5% at the time. We’re now on a combined income of about £80,000 plus the estimated rental income (call it £20k after expenses) and they’ve told us that we definitely can’t afford the £115,000 outstanding – in fact, the most they’d be prepared to lend us if we ported the mortgage was….
….wait for it….
£32,500!!!!!! (And no, I haven’t missed a digit off the front of that!)
It’s down to the credit cards, apparently. They did say that they’d be happy to lend us the full amount if we would let them take 80% of the value of Ethel’s as security as well, but obviously that doesn’t have a title yet, so nothing they could secure against.
I’m now talking to the lender who’ll be doing the holiday let mortgage to see if their residential arm will take on our residential mortgage, as their commercial arm is happy with the credit card situation, but I fear that we may be stumped until Ethel’s is mortgageable. I just hope someone doesn’t come along and snap up the other house in the meantime.
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.
Visitors who rent self-catering properties are thought to be worth almost £300m to the Scottish economy.
An interesting article on the BBC website. The research only covers properties assessed for business rates as self-catering lets, not people doing Airbnb or renting out houses still assessed under council tax.
Some key numbers:
- 23% of visitors to Scotland rented a self-catering property for at least part of their visit.
- 32% came from England, with the north-west being the largest regional contributor and London the smallest.
- Scots renting self-catering properties in Scotland accounted for 30% of the total, while the other 27 EU nations represented only 4%.
- Most groups were made up only of adults, with children included in 30% of rentals.
- The average spend on accommodation was reckoned to be £643 per group, totalling £313m.
- They spent, on average, £245 on travel to and from the property.
That’s not the only promising news today – we have passed the initial affordability checks for the mortgage we need and have now proceeded to a full application for a decision in principle. If we get that, then things are looking good – as long as they agree with the valuation. We’ve got a little bit of wiggle room cash-wise, but not a huge amount.
I’ve also heard back regarding buying the land Ethel’s House sits on and the Agreement in Principle should be with me on Monday, but the gist is that I’ll need to pay them £150 for the actual land, plus £280+VAT to their solicitor for preparing and issuing the formal offer of sale, plus £300+VAT to the Drawing Office for them to send a surveyor up to prepare plans to be attached to the offer of sale. Then I’ll have my solicitor costs on top of that, so it’ll work out about six times the cost of the land for all the paperwork!! However, this gives the house title deeds and puts it on the Registers of Scotland, making it suitable security for a mortgage, so it’s well worth doing.
My father used to say that buying a house was like the Grand National in terms of how many fences one had to jump to reach the finish line. It appears that we only have three in our personal Grand National, but they’re all pretty much Becher’s Brook-sized.
Those of you going, ‘Eh? What? Buying a house??’ haven’t missed anything – this time last week we weren’t even considering buying a house, but then an opportunity came up that we knew we would absolutely kick ourselves for missing out on if we didn’t try and take it, and so after a telephone call with my mortgage broker this morning to clarify some points on both sides, we are going for it.
More details of the house once it’s sewn up, but our three fences are:
- Can we raise £127,000 on a buy-to-let mortgage?
- Can we get a market rental valuation of £650 a month?
- Can we borrow back the mortgage reserve on our current mortgage?
I spoke to our lenders this morning as well, and the answer to 3 seems to be a cautious yes. They’re closed to new business, so need to double-check with the higher-ups that it can be released and also the full amount will need to be within the original lending criteria in terms of LTV, although we should be okay on the latter point – we’re currently under 60% LTV.
So watch this space and please cross your fingers!
Going back to my father – he would have been 84 yesterday, so he was on my mind, and with the Grand National being run last Saturday, I was thinking about a letter he wrote me when I was at university and he and Mum had put in an offer on a beautiful Grade II-listed house in Somerset, with the plan of my grandmother going to live with them there as well. It only took me a few minutes to find it, despite the current state of my office (it still has an entire Howdens kitchen crammed into it!), and I realised from the date that it was the last letter he ever wrote to me before he died – he was in a serious car accident seven days later. So in a post about my Grand National fences, here are Dad’s, from 23 years ago, together with the fountain pen he used to write them which I still use every day.
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.
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.
|Roof & stonework
|Heating & burner install
|Plasterboard & insulation
|Switches, sockets, light fittings
|Shower tray & screen
|Woodburner & kit
|Windows and door
|Interest, council tax, electricity
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
|Mattresses x 4
|Sofas x 2
|Kitchen table & chairs
|Wardrobes x 3
|Drawers x 2
|Bedside tables x 4
|Pots, pans & crockery etc
|Cushions, pictures etc.
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.
…and she found she’d left the electrician off it!
Yes, we’ve reached the planning stage. This is a list (not quite in the right order) of all the stuff we think we have to do to Ethel’s House.
- Treat woodworm.
- Strip all rooms back to walls.
- Repair kitchen ceiling.
- Re-wire house.
- Enlarge fireplace in living room to take woodburner.
- Replace windows.
- Replace front door.
- Replace roof and all rainwater goods.
- Repair chimney.
- Enlarge two existing roof lights and add two more.
- Insulate all rooms and roof.
- Install underfloor heating in kitchen and bathroom.
- Install new kitchen.
- Install new shower.
- Lay solid wood flooring throughout ground floor.
- Carpet up the stairs and throughout upstairs landing and bedrooms.
- Install woodburner in living room.
- Decorate throughout.
Just a bit of work to do, then… We are really dependent on the electrician and the roofer, as a lot of the rest can’t be done until they’ve finished. By the time we’ve got it furnished, hopefully the decrofting of the house site will have come through and I’ll be able to get it revalued and apply for a small mortgage to pay off all the money I’ll be borrowing to pay for the list above. At the moment I have a home report that says it’s worth £77,500. Compared to other 3-bed near-identical houses in the village currently for sale, that’s very, very low – although all those came to market after the home report was done. Given there’s a 2-bed bungalow with no land 200 yards up the road that’s been valued at £125,000, I think we should do okay when it comes to getting a good low loan-to-value.
ABBA had it right; it ain’t funny, especially when you’re trying to raise it against an unmortgageable property.
I will hold my hands up here and say that I’ve been EXCEPTIONALLY lucky and am borrowing the money to buy the croft from family, although I’ll be paying interest on it at base rate plus 3%. That covers the purchase price and my savings will cover the solicitors’ fees and some of the work that needs doing, but by no means all of it.
So what am I doing about the rest? Well, it’s a bit of a risk and could all go horribly wrong, but I have a clean credit record and four credit cards with high limits that keep sending me 0% cash and balance transfer offers. So I’m planning to put the work on the cards and hope that I can get it done up and the issue that prevents the house being mortgageable sorted before the 0% period runs out, then apply for a mortgage to pay back the cards and the bulk of the family loan (although the family is happy to let the loan run for a while if mortgage rates start doing silly things).
As it happens, I had a bit of luck last week regarding finances. I’m self-employed and one of the companies I freelance for offered me a guaranteed 20 hours a week. Initially I was going to turn it down, as it’s less money than I usually charge per hour and they wanted me to work 6am until 10am every weekday. Then I thought about it, decided that I was being a totally spoilt princess and if the universe was going to drop over half of what I need to earn each month into my lap in return for the alarm clock going off half an hour earlier than it does anyway for my husband to get up, it would be extremely ungracious of me to turn it down. Guaranteed income means less time spent drumming up new business and these guys pay promptly and never need chasing. The rest of what I need to earn each month will be easily covered by my other regular clients and shouldn’t take up more than 8-10 hours a week, meaning I’ll be able to block out periods of time to work on the house. I start tomorrow, wish me luck!
When is a house not a house? When it’s a croft.
Technically, when I say I’ve had an offer verbally accepted on a house, that’s not strictly true. I am, in fact, buying two croft tenancies, one of which happens to have a house on it. Many crofting tenants have bought out their tenancies and become owner-occupier crofters, these two still remain as tenancies and the house site has not been decrofted, so the Scottish Ministers own the land and, assuming that I’m considered a suitable person to be assigned the tenancies, I will have to pay them rent for the crofts until I can buy them out. The buy-out figure is usually 15 times the annual tenancy (which will not be huge – to give you an idea, the 3.12 acres that go with the house we currently live in was bought out by the previous owner for under £100) but once you’ve become an owner-occupier, if you sell the land on within ten years (recently increased from five years), you have to pay half the difference between the amount you paid and the current value back to the landlord.
It’s all a bit of a legal minefield and having a solicitor who understands crofting law is absolutely essential. The formal offer that went in for these two tenancies ran to 23 clauses on top of the Scottish Standard Clauses and includes things that wouldn’t have crossed my mind, such as ensuring the crofts are sold “together with the whole permanent improvements, including the dwellinghouse” (it would be a shame to pay all that money and find they’ve bulldozed the place…), that “it is an essential condition of this offer that the Crofting Commission consents to the assignation of the tenancies” (it would also be a shame to pay all that money and not be able to do anything with the place) and various other clauses that ensure I don’t get stuck with any very large bills or long-lost claimants to the tenancies popping out of the woodwork.
The other big stumbling block is because the purchaser of the tenancies doesn’t own the ground the house sits on, it’s completely unmortgageable. Even the bridging loan companies I rang wouldn’t touch it (not enough equity in our current house to back it up). One absolute right a crofting tenant has, however, is to buy the house site from the landlord and have it decrofted – usually an area of 0.2-0.5 acres is permitted to be taken out of crofting tenure to give some garden space as well. This then makes the house suitable for mortgage lending purposes. I’ll talk about finances in another post – I will be completely transparent about money on this blog – but I’m in the very fortunate position of being able to borrow money from family to make the initial purchase, on which we’ve agreed I’ll pay interest of Bank of England base rate plus 3%.
One of the conditions of the Crofting Commission thinking me a suitable person to be assigned the tenancies is that I work the crofts. So I’m not only taking on a renovation project, I’m taking on just under 10 acres of fields, which means I’m going to be learning to keep sheep and make hay as well. Never a dull moment!