Cross your fingers

Today could be D-Day for the mortgage application.  Looking back, I can’t see if I mentioned it on here or not, but a few weeks back I got a call from the lender (residential side) to say that they were no longer doing mortgages on properties outside their geographical area, but as we were so far through the process, if I paid the reservation fee we’d be allowed to continue.  So I rang them up and paid the £199 and got on with chasing up my SA302s from HMRC and Mick’s employment reference, both of which were duly sent off.

Then they rang to say that head office couldn’t work out whether my income was on track to be similar to previous years.  Could my accountant please write a letter confirming that it would be, as they were a little concerned by the drop in income between the two years of self-assessment paperwork they’d asked for.  Well, no, she couldn’t, because the sum total of involvement my accountant has with my business dealings is getting a multi-tab spreadsheet around the end of May listing out all the invoices I’ve issued and received for the various pies I have a thumb stuck in.  In all honesty, I didn’t even put her in the position of having to say no – I did a year of KPMG’s graduate programme before deciding accountancy wasn’t for me, and I wouldn’t have done it, or if I had it would have been so heavily caveated as to be basically worthless.

In the end I suggested that I draw up a 5-year income forecast, send it to my accountant along with my data sources and assumptions, make any changes she recommended and then she would write a covering letter saying she agreed my forecast was a reasonable estimate of future income.  My mortgage adviser thought head office would find that satisfactory, so I spent last week working out things that sounded like bad GCSE maths problems:

If you put 42 ewes to the tup in November, how many lambs and ewes do you sell the following year and what is your wool clip price?  Assume 50% of ewes have twins, 50% of all lambs are male, 5% of lambs die between conception and sale, 5% of ewe lambs do not make the grade for retaining as breeding stock, you wish to retain a maximum of 30 ewe lambs, your 5-year-old ewes are drafted out and you get approximately 2.25kg of wool per sheep at £1 a kg.

My brain has not had to work that hard for some time, but I got through it, my accountant made a couple of minor changes and then very kindly wrote me a letter saying she agreed with my forecast income of £22,296.50 for the next 12 months, rising to £46,972.79 in five years’ time!  (These figures are gross income less the holiday let agency fees+VAT, but no other costs have been taken out, as the building society’s number crunchers decided to factor the running costs of all three houses into their affordability calculations, and the other two income source have very little in the way of expenses – my actual take-home will be a lot less than that and I’m going to have to remember to put a lot more aside for tax!)

With all the number crunching it was a nice break to get down the road to do some painting.  Some colour’s gone on the wall in the single bedroom and it’s turned out to be exactly the same shade as my father’s old study in the house I grew up in!

I’ve now got that woodwork primed and hopefully will get paint on it today, which means I’ll have the first room DONE!  (Well, apart from getting the smoke alarm fitted, putting some carpet down and hanging a door, but none of those are my jobs!)

In the meantime, we’re gearing back up for haymaking, although the weather isn’t currently giving me much cause to hope we’ll get it in.  I might have to get someone in to do big round bales and wrap them for haylage instead, especially considering Mick’s having an issue with his hip and won’t be able to spend all day in a hay field carting small bales back up to the barn.  He has, however, made me an impressive new swath board for the mower.  This pushes the cut grass over by about a foot so that the tractor has a line of bare field for its wheel, the stick on top knocks over any grass that’s thick enough to go over the top of the board.  At the moment, the long-range forecast is showing a dry spell 18th-24th August, but it keeps coming and going, so please cross your fingers on the other hand for that!

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)

Inching towards the finishing line

I’ve been tied up with a big project in my day job, so once again work has ground to a halt, but two bits of encouraging news on the financial front:

  1. The residential lender has been in touch to say the credit reports are back, but because I provided the version of an SA302 my accountant’s tax submission software spits out rather than a proper HMRC one, there’s a slight problem with verifying my income.  I can either write to HMRC and request they produce official ones for me (I can’t just print them off the website because that option isn’t available when your self-assessment gets submitted via accountants’ software) or they can forward my application to their head office for one of the senior lending staff to look at it, and they recommend I take the latter option because “referral route may be quicker on the basis that my head office would be happy to agree” – which sounds promising!  They also sent me a list of valuers on their panel to choose from, so fingers crossed we’re nearly there with this.
  2. SGRPID got in touch to say that the Drawings Office would be visiting on 26th June to survey the house site and garden at Ethel’s in order to prepare the sale plans.  This is amazing news because originally I was told it would be about six months, i.e. October/November.  It may actually now turn out that that side of it is ready before I’ve finished the house.

Anyway, all good incentives to carve out some time to get my overalls back on, and the upside of working flat out on something for the past week (to the extent of starting at 6.15am and closing the laptop at nearly midnight for the last two days) is that the invoice covers a very large chunk of what I need to make from the day job each month, so I don’t need to go chasing around for other work too hard for the next three weeks.

Back on track

Good news! After a lengthy conversation with the residential arm of the company doing the commercial mortgage, we have a conditional agreement to lend us £135,000 to buy the new house. I have to send them Mick’s payslips, my tax returns and 3 months of statements for all our current accounts, and they want a valuation done because the seller’s surveyor isn’t on their panel, but if we get through that, we’re in the clear. Even better, their 5-year fix rate dropped by 0.1% last week.

With that back on track, I’ve turned my attention back to the plastering, which it seems I’ve now been doing for 2 months. Lesson learned – next time we get one we have to go back to bare walls with, I’m taking £500 out of the budget for lost earnings and blitzing it full-time for 2 or 3 weeks.  I’m working in the north bedroom at the moment and that gable end that gave us problems with leaking is all sealed up.

Pretty hot working up there on Friday morning though!

Glorious day.

And this is definitely a room with a view (pic may be temporarily sideways, but I’m in Glasgow writing this on my phone and can’t fix it until I get home!)  EDIT:  Home and it’s showing as the right way up in the source, but not in the post – weird!

Pete and James have been back to start putting the tin on the barn roof and it’s looking great.

Financial frustrations

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.

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.

Promising news

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.

Under starter’s orders

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:

  1. Can we raise £127,000 on a buy-to-let mortgage?
  2. Can we get a market rental valuation of £650 a month?
  3. 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.

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.

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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.

She’s making a list, she’s checking it twice…

…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.

  1. Treat woodworm.
  2. Strip all rooms back to walls.
  3. Repair kitchen ceiling.
  4. Re-wire house.
  5. Enlarge fireplace in living room to take woodburner.
  6. Replace windows.
  7. Replace front door.
  8. Replace roof and all rainwater goods.
  9. Repair chimney.
  10. Enlarge two existing roof lights and add two more.
  11. Insulate all rooms and roof.
  12. Install underfloor heating in kitchen and bathroom.
  13. Install new kitchen.
  14. Install new shower.
  15. Lay solid wood flooring throughout ground floor.
  16. Carpet up the stairs and throughout upstairs landing and bedrooms.
  17. Install woodburner in living room.
  18. Decorate throughout.
  19. Furnish.

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.