How I failed to take my first step on the property ladder and what I’ve learned from doing so
When people ask me why I moved from London to Leeds I often call myself an economic refugee, fleeing the overinflated rent prices of London to the more reasonable prices up north that has allowed me to put aside money and access a greater quality of life.
To illustrate the difference, when I moved up north initially in 2017 there was a stark contrast from the £750 I was paying a month to rent a bedroom in a house near Tooting Broadway tube station with six others to the £850 it cost to rent a two bed, two bath flat to ourselves (this was also an opportunity to live with my girlfriend) just at the edge of Leeds city centre.
However over time that rent price has crept up and is now just shy of £1,000 a month but what I get for that money is still going to exceed anything that London could offer.
The first significant price hike came in 2020 when we were in lockdown and the block of flats had it’s cladding replaced. That increase was enough for me to look at the money safety net I had been building for six years and think about using it to secure a place of my own that wouldn’t be seeing a price hike every year and regain some control over our living arrangements.
We found a two bed, two bath flat with similar square footage to the one we rent overlooking the river that was within a budget for a 10% deposit that I had managed to save up but unfortunately the lenders at the time had raised the minimum loan to value (LTV) for mortgages and I was unable to secure a mortgage to buy the place (my mortgage broker had 2 of the 93 deals in his system at that LTV).
Finding an amazing deal
Over the next two years I was able to save up a bit more money and after yet another rent increase we started looking at places again. This time I cast a wider net and we found a flat in the Victoria Mills development in Shipley.
When we viewed the place I was taken away at how much space there was for the asking price as the flat was a 1,600 sqft, 4 bed, 3 bath penthouse split across two levels and compared to some of the flats we’d seen in Leeds it was at least twice as big and well over £100,000 cheaper.
After looking at some other properties I couldn’t find anything nearly as good, as the flat offered the following:
- It was within budget for me to put a 20% deposit down
- It would equal about the same monthly cost as the current rent based on the numbers the estate agent gave me
- Shipley has really good transport links into Leeds
- The flat is right by the canal so it’s easy to cycle into Leeds or go for nice scenic walks to Saltaire and Bingley
- The development was really nice, it was a grade II listed mill conversion that had really nice grassy areas and overlooked the river
So I decided to put an offer in at £10,000 under the guide price which I was expecting to be rejected because a lot of properties at the time (this was in March 2022, just before the word ‘recession’ was uttered) were going for over asking but the seller countered with £3,000 under which was better than I expected and so I started to look for a mortgage.
The mortgage market was a lot better than in 2020 so I didn’t struggle to find a lender and was able to kick off the process quickly as I retained the information of the companies I used from the previous attempt.
Once my mortgage broker helped me select a lender (I went for a bank I already had an account with in the hopes it would make things easier) the valuation was booked in and I awaited news on if I was going to be given a mortgage offer.
While waiting for the mortgage offer I also started the conveyancing side of the purchase, and had a set of searches carried out to ensure that what I was buying wasn’t at risk of flooding, mining related issues or Radon, which was flagged as an issue.
I’d never heard of radon before as the areas I’ve lived in have apparently all been Radon-free but properties in Shipley have a 5–10% chance of having Radon which as someone who had asthma as a kid probably wasn’t the best thing to be exposed to.
I did have a nice little surprise in these initial stages as it turned out the lender had forgotten that the lease was 125 years instead of the 100 they listed but unfortunately around that time I had a less enjoyable surprise — the first mortgage rejection.
Stumbling block one
The surveyor from the first valuation came back to say that though they felt the property was worth the amount I had agreed to pay for it, the service charge was ‘excessively high’ and that would impact the ability for the bank to resell the flat should they have to repossess it.
I had been told previously that the combined service charge and ground rent for the flat was £2,400 a year which was already on the high side so I had assumed that was the figure that the surveyor had raised the issue with. It was not, but they did not disclose the actual figure or the baseline they compared it to.
After the rejection came in I was asked what I wanted to do as I had two options:
- Try a different lender — This would involve some tactical mortgage applying as lenders tend to use a pool of surveyors so I’d have to limit my lender options based on those that use different pools
- Give up — This was very tempting because the UK government was doing everything in it’s power to strip the general population of it’s rights so I didn’t know if I wanted to anchor myself to the UK with debt
I decided to persevere and try a different lender and my mortgage broker did an amazing job at preparing a list of options, sorted by likelihood of the lender using the same pool of surveyors against the overall costs of mortgage which made it easy to pick a lender.
The new lender’s offerings were 2.9% instead of the 2.1% I had with the original lender but that value was OK-enough for me so we applied and the valuation was booked, which was a sign that our tactics paid off as if the same pool of surveyors had been used they would immediately sent a response back.
We also asked the new lender what the acceptable value for the service charge was in order to pre-screen if the lender would refuse to lend and luckily that £2,400 combined figure I was given was within range so we were feeling confident that we’d get the mortgage offer.
Stumbling block two
The new valuation came in and true to their word the bank said the service change price was within the limits they set but the surveyor had valued the property at £27,000 less than the price I had agreed with the seller.
Due to the fact that I was putting in a 20% deposit I had some options available to me:
- Pay that £27,000 out of my pocket — This meant going to a 90% LTV mortgage which would mean higher monthly costs and I’d only get that £27,000 back if the property sold for that amount higher than the mortgage later on
- Ask the seller to lower the price — £27,000 is large amount of money to negotiate but doing so would also lower the amount I’d need for a deposit and the overall mortgage price
- Walk away — It was around this time that the US Supreme Court overturned Roe vs Wade and a UK MP asked if women had the right to abortion. It didn’t feel like a good time to be locking myself into living in the UK
The only realistic option was to negotiate a lower price so I asked the estate agent if the seller would accept a £21,000 cut (the remaining £6,000 would have been the difference between the original deposit and newer deposit) and within the hour I had a message to say that the new offer was accepted.
I was feeling really good after hearing that as that newer price meant a couple of things:
- The overall mortgage was lower — The amount I’d need to borrow was reduced by £24,000
- Overpaying every year was more achievable — Based on a 10% overpayment, the first year alone was £3,000 less than before and that saving could go towards decorating the flat
- Monthly payments would have been lower — Almost £100 a month less a month would have been saved
Once the new offer was accepted by the seller I then had to go back to the lender to tell them of the new value and I had to tell my solicitor too, although it turned out they knew already because the seller’s solicitors had been in touch.
Stumbling block three
A few days later however my solicitor gave me an update that took the wind out of my sails — The service charge and ground rent values I’d been given were incorrect and weren’t £2,400 a year but £3,200 a year (£200 ground rent, £3,000 service charge).
It started to make sense why the initial valuation had flagged the service charge as being too high but it had taken close to three months for me to actually get the figures myself.
I then had a couple of options:
- Pay the £3,200 a year — This figure would fluctuate every year as energy prices changed and works were carried out across the development so it was likely to rise because the cost of living the UK is sky-rocketing
- Offset the service charge — The flat came with the use of two parking spaces and as I don’t drive I could have made the monthly service charge cost back through those
- Give up — It was around this time that the proposed UK Bill of Rights had been in the news for proposing the removal of the Statute Of Limitations so if in the future the law changes you could get arrested for something you did before it was illegal, like seriously how dystopian can this country get?
The first avenue I tried was to try and offset the service charge because I didn’t need the parking but I was told that while I had the right to use the parking spaces I did not have the right to rent out that use.
So I decided to give up on the purchase as it was just unjustifiable to spend that much a year on a service charge that I’d not get all the benefits from and that would rise as the cost of living rises.
After making the decision to pull out of the purchase my immediate thoughts went to how much that was going to cost me. I had already spent £220 on the searches and the solicitor had originally quoted £1,600 so I felt like I might end up losing a lot of money with nothing to show but an increased level of stress.
Luckily the solicitor fee was only £300 and the mortgage broker works on the basis of getting paid once they secure the mortgage so I wasn’t as out of pocket as I thought I’d be.
What I’ve learned from everything falling apart
While it’s a massive annoyance that I had to walk away from buying the flat, especially due to information I was not able to access until way later than other parties this has been an opportunity for learning.
Here’s a few opinions I’ve formed along the way:
- I’m in a privileged position — Talking to my mortgage broker drove home how ‘rare’ my situation is as most of his first time buyer clients have gifted deposits which were enough for them to secure the mortgage but they don’t have much in the way of savings. While I could argue they are privileged to get given large sums of money there’s a lot of risk they’re exposed to that I’m shielded from because I have my safety net to fall back on
- Shipley and Baildon are good areas to look in if you work in Leeds — Shipley to Leeds on the train is one stop, takes about 18 minutes and the trains are regular as well as good bus links and cycling along the canal
- Surveyors don’t need to disclose the data behind their decision — It’s also really hard to argue with the bank to get a second opinion, especially if the issue is the service charge as this isn’t in the seller’s ability to change
- Mortgage lenders will often use a set pool of surveyors — If one lender won’t give you a mortgage offer based on the valuation then you can potentially mitigate this issue by choosing a lender who uses a different pool of surveyors
- If the flat is 7–15 years old you’re releasing someone’s capital — Pretty much every flat I viewed was bought as part of the initial purchases for a development and had been rented out (or not, see next point) and was now on the market as the mortgage had been paid off and the seller wanted to get access to the money locked up in it. This can work to your advantage as it means that the seller is often more motivated to accept lower amounts in order to secure a sale
- Buy to leave is a thing — As someone who moved to gain access to more affordable housing this really makes my blood boil. Combined with the above point, ‘Buy to leave’ is where that initial purchase is not rented out at all and instead left for 10 years in order to just accumulate value. From a buyer point of view this can also be bad because at least with ex-rentals the seller would have had to ensure that things like the boiler and electrics were in working order and safe for the tenants
- Radon is more prominent in properties with a basement — As an ex-Londoner a basement to me just means a dingy ‘flat’ where someone’s converted a Victorian townhouse but up in Leeds/Bradford a lot of the ex-mill worker housing has basements where they used to store coal. However when learning about Radon I found out that these basements may actually increase the chances of a house being affected by it
- Service charges can’t generate a profit for the management company — Service charges are based on the costs to maintain the development as well as reserve/sink funds for works that may need to be carried out in the future and will give you an estimate for expenditure every year. If that estimate is higher than the actual cost then they have to either give you that money back or give you credit
- You have to get insurance so the local church can’t charge you for repairs — As part of my solicitor’s fees I had to pay £15 for insurance to protect myself should the local church need works carried out because in England and Wales if the land you own was once owned by the church they could charge you for it
- Ownership isn’t all it’s cracked up to be — If like me you’ve saved up for your deposit then you’ll know that there’s a sense of security that liquidity gives you. It’s a safety blanket for when things go pear-shaped, it’s the ability to quit your job and chase other ventures if you want to and it’s hard to part with that cash and take on a lot of debt for the rest of your life
- The UK housing market might shift soon — Based on the conversations I had with my mortgage broker when the second valuation undervalued the property it looks like this is happening a lot which might mean that the housing bubble deflates a little
I’m now going to be putting some of that deposit money towards a long trip to Japan which would have happened in 2020 but got delayed for obvious reasons while I have a think about my next steps.
There’s two main issues I’ll need to take into consideration:
- Do I want to anchor myself down to the UK with a mortgage? — My deposit money is basically my freedom to up sticks and move abroad if I feel that the UK is no longer a place I want to live in. Buying a place means losing immediate access to that money and the mortgage means I don’t have the flexibility that renting offers
- When’s the best time to strike if I do want to buy? — If the UK housing market bubble is about to ‘pop’ then when is the best time to take advantage of being able to get a lower price without having the property having losing even more value