New house, new start
Back in 2006 I bought my third house, after previously selling my previous two that I part owned with an ex partner. It was nicely positioned on the A64 and allowed me to commute to and from work in Harrogate. The journey, depending on traffic and any accidents (that were very frequent on the 60 mile route) would take me anywhere from 1 hour 15 minutes to 3 hours each way. The house was a nice new build, mid terraced 2 bedroom house and I rented the spare room out to help me make it affordable.
After a year and a half commuting everyday to work, and having a serious car crash that could very easily have killed me, I decided to explore ways to rent out my house and move closer to work. Selling wasn’t an option as I was in negative equity that was the result of a house price crash in 2007 just after I purchased the house, so I had to keep hold of it and rent it out.
Time to rent it out
To condense a long story, the only option to keep my current residential mortgage, obtain consent from the bank, pay a big interest premium and rent it out for up to three years – so I took it. I moved into a spare room in a flat in Harrogate and found tenants for my house. Over the next few years I had a right mix of tenants, I had to swallow the mortgage payments when the house was unoccupied on several occasions and generally took big financial hits from the place.
I almost lost the house when times got tough financially but with a mortgage break from the bank I got back on track. After 3 years of owning the house, I owed more money than the house was worth and at times, when it was unoccupied (four months at one point), I felt I was almost at a point where I couldn’t afford at anymore. Rent never covered the mortgage, rates were going up, I had to pay the letting agents over £300 every time I need a tenant finding (unmanaged) and with the missed rental periods I was struggling, big time.
Ultimately, I was saved by the reduction in the Bank of England’s base rate. When the mortgage was taken out the BoE interest rate was 4.5% and with my mortgage deal I was paying around 7.5% on my mortgage (3% + BoE BR). Over a few years the BoE base rate want to 0.5% and for a while I was paying a more affordable mortgage. The rent I was getting almost started to cover the mortgage and it was almost self financing, minus the running/maintenance costs that I have already mentioned.
At the point where I was starting to get back on track financially, my bank decided to wade in and upset the balance. In order to keep the mortgage, and keep renting it out with their permission, I would need to go onto a new mortgage product. This time at 5.69% above the base rate. Nothing changed in my circumstances. The bank simply decided to take advantage of my position, lack of options and bump up my mortgage again. Now with the BoE base rate being at it’s lowest rate in history, I had to pay them 6.39%. If I lived there, I could have got a rate of 2.69%, which on my mortgage would equate to a reduction of around £300 a month on my mortgage payment.
It’s important to note that this was the only option I had. A buy to let mortgage wasn’t an option as I needed a minimum of 20% equity in the property and I couldn’t transfer to another lender because none of them would consider me for a consent-to-lease mortgage as a new mortgage applicant. I know for certain my bank, and many others, knew this and I’m certain they acted to maximise their profits, whilst maintaining the argument that they needed to protect themselves from bad debt.
At this point I knew the only solution I had to change the situation was to work my ass off, pay big lump sums off the debt and get into a position where I could remortgage onto a Buy to Let mortgage.
New career path
I worked for 10 years as a senior web designer in a digital agency but no matter how hard I worked, the wages were never enough to help me save any money. I decided to freelance on the side and earn money out of work to achieve this. One week a clocked up 92 hours so you can imagine how exhausted I was. It wasn’t sustainable. Thankfully, freelance work was going really well and I was getting contacted by companies, agencies, affiliate marketers and entrepreneurs from all over the world. They loved the service and product I was offering and referrals drove my success.
After 12 months, and with the push from a close friend who had gone full time freelance 9 months before, i quite the rat race, humg up my agency gloves and dived full time into freelance work.
The first year was really successful for me. I managed to save a lot of money and ploughed this into the mortgage, whilst holding back a bit for rainy day money. The second year was harder, especially with the change of landscape online for my main clients, but I still earned more than I did in full time employment. I also developed side projects with my freelance buddy, which provided a steady side income for us both.
Now three and a half years after going freelance, working crazy hours, being a father and looking after Mr Woots (family pet dog), I had managed to pay off a fair chunk of my mortgage. Since the housing crash of 2007, house prices have also recovered significantly, almost to the point where the house is worth what I paid for it (about £5k off atm).
I started to look into Buy to Let mortgages and soon found out how much I could save by remortgaging. Again, to cut a very long story short, I instructed a fantastic, independent mortgage advisor called Julian to find me the best deal. Being self employed made it a troublesome process but we got there. Julian gets paid by the banks for being an intermediary so the service cost me nothing.
I’m currently in the process of remortgaging from Halifax to Virgin Money and I can’t wait. I’ll save a lot of money but more importantly to me, I’ll be saying goodbye to a difficult financial period of my life.
During my 8 years of being a forced landlord, I’ve seen a lot and been through the mill. There isn’t much I don’t know about mortgages, fees, costs, lenders and how quicker a good situation can turn sour.
I’m concerned for first time buyers these days. Average house prices are now in excess of £270k and with interest rates being as low as they are, a lot of buyers may soon find themselves in financial handcuffs once interest rates start to go up. Thankfully, banks now gauge the affordability of a mortgage on your income and 7% interest rate, so that should limit the amount of people getting caught out.
To put it into context, a mortgage I looked at getting (removing the details for simplicity) returned a mortgage of circa £1,000pcm over 25 years. on the 7% interest rate (that I paid a few years ago) brought the mortgage payment to over £1,650pcm. That’s mental to see but it’s the reality.
A handy website for landlords
I also discovered a cool website called Openrent.co.uk that helps you find tenants for your property. Having a lot of experience in this area now, I decided to ditch my letting agent (who was demanding £370 to find me a tenant) and used them instead. I posted a property listing on a Friday afternoon (took 10 minutes), published it, paid £49 and within 3 hours the property was off the market, a holding deposit received (£200) and the process of referencing and contracts had already started. Over the weekend, the automated system completed referencing, had the contracts signed, collected the bond and first months payment and secured me two brilliant tenants. I’ll certainly be using them again. I could write a long post about OpenRent but I’ll save that for another day.
Wrapping it up
Well it’s been a complete brain dump in this post so apologies if I lost you half way through. In summary, I’ve ridden the housing storm and I’ve come out the other side. I feel like Forest Gump, when he returned after the storm and saw all the fishing and shrimping boats destroyed. This housing storm has taken a lot of victims along the way and for those of us that have survived, we can more confidently prepare for the next one.