What is a ‘forever home’?
My wife doesn’t believe there is such a thing as a forever home.
I also think the idea of a forever home is idealistic.
Life and our experiences are transient. The notion that despite this, the house can be immune to these changes and can remain suitable for us until the day we die is unrealistic.
I find the idea restricting and goes against our ambition of creating a life that is flexible. We’d like to live and experience the world without something tying us down to a particular location.
However, having children has helped me to think differently. I now like the idea of having a home which we would keep at least until the boys are independent. A place where they can grow up and create memories to look back at.
Although it might not be our final home, it will be our base to return to when we decide to do some travelling for many years to come.
I’ve used ‘forever home’ here because most people will know what I mean. The phrase “long-term primary residence” just doesn’t roll off the tongue.
This will be a series (currently of unknown length) documenting our journey towards finding our forever home and renovating it.
Mortgage-free, but not for long…
As some of you may know, in June this year, we made our final mortgage payment on our primary residential property and were mortgage free.
Our original FI Plans were to keep the house to rent out until we return from our travels once we feel like we’ve reached FI in 2025. However, through conversations with our financial planner, we felt that our small property portfolio made up too much of our net-worth compared to other asset classes. The biggest part for us was also wanting an easier life – being a landlord is NOT passive!
As a result, we made the decision to sell the property we’ve just paid off and invest the money in a global index fund.
That was until we found our forever home…
Rewind 18 months…
About 18 months ago, Mrs. CC and I were discussing where we think we would eventually settle down once she leaves the RAF.
I said I’d like to be by the mountains; she said she liked to be by the sea.
The two doesn’t really go hand in hand here in the UK; not helped by the fact that we also wanted to be closer to the kids’ grandmother near London.
…no mountains around London. I don’t even think there is what I’d call an impressive hill.
Mrs. CC said one day why don’t we do a day trip to this seaside town about an hour’s drive from her mum’s. It was a place she had been reading about and wanted to see what I thought as a place to eventually settle down in.
As soon as we arrived, we both thought: “this is it”.
It didn’t feel touristy.
Had a nice charm to it.
One problem – very expensive!
On our return from the day trip, I set up a Rightmove alert which covered that town and the one next to it that is about 10 minutes drive away with the following criteria:
- Must have garden.
- Must have parking.
- Detached or semi detached.
- £500k maximum budget.
We continued to monitor the alerts which arrived in my inbox every week and got a good sense of what we could get with that budget.
We also had the following additional criteria which required us to manually filter out and narrowed down our possible choices even more:
- Walking distance to the sea.
- Large enough plot to build a separate annexe.
- A sea view (nice to have, but would struggle on our budget).
Nothing came up.
No surprise there!
We put our house on the market due to the news of the stamp duty holiday. I figured that now was a good time to execute our plan to diversify away from property.
With the full impact of the economic recession yet to be felt, I was worried that if I did not take the opportunity then, I would need to hold on to the house for many more years should the housing market crash (see the property cycle).
I quickly contacted our accountant and paid a very reasonable £100 to confirm what capital gains tax we could potentially be liable for. Although I was able to do a rough calculation, it wasn’t that straight forward due to our circumstances. I needed to calculate the length of time I had lodgers in the property during our ownership as well as the floor space percentage rented out to them.
He confirmed no tax would be due so long as we didn’t sale for more than a certain amount. We were all good to go!
The property is a three-bed end terrance house which is one minute walk from a primary school rated as outstanding. It’s a 20 minute walk to the town centre.
I bought it for £185k.
Since owning the house for 13 years, I’d hardly done anything to it. The estate agent said as much!
The kitchen must have been over 20 years old. It was simply a place for me to put my head down and get some rest when I was in the area to work.
As a result, our target market was:
- An investor looking to extract value from it who had connections in the building trade. They could do some modernisation cost effectively; or
- A young family who were looking for a home and wanted to make their own mark on it.
Once modernised, it would get between £265-275k. For me, not having time to do any of the work or connections with local traders, it would cost me about £20k to renovate it.
We decided to list the property for £240k and have an open house. We priced it realistically to get people through the door.
We received five offers on the open day. The offers ranged from an absolute cheeky £222k to £247k.
It came down to two:
- Cash offer of £240k; or
- BTL investor of £247k.
The cash offer was tempting, but with a £7k difference, we went with the BTL investor who had a mortgage agreed in principle.
We are currently towards the end of the legal work and in the process of agreeing exchange and completion dates.
Assuming it all goes through okay for £247k, it means in 13 years, we’ve made £62k in capital gain (34%).
Doesn’t sound much. However, considering we bought at the height of the 2007 property boom, experienced years of negative equity and not put much money into the property to do it up; it’s not too bad really.
It represents a 2.8% annualised return, not including our lodger income over the years.
Factoring the £120k income we received from lodgers during the time we have owned the property gives an annualised gross return of 7.6%.
We’re happy with that.
Out of the blue
With the Covid-19 lockdown lifted, we booked a staycation break back at the beach town we first visited. During the visit, on the exact same day we accepted the offer on our house, an alert popped up which on paper seemed to fit all our criteria.
It even has a sea ‘glimpse’ from two of the bedrooms.
It’s a charming 1940s three bed detached house on a 670m2 plot with lots of potential. It’s also situated on a cul-de-sac with only 11 other properties a few minutes walk to the sea and 10 minutes walk into town.
We were very excited.
We tried to book to view it whilst we were in the area but it was currently tenanted and was only available to view at the weekend.
We returned from our break and day tripped it back to view.
The property was listed as offers in excess of £500k. The estate agent said they had appraised it as £525k but listed it as ‘offers in excess of’ to allow it to feature when people set their budget at £500k.
We asked what the vendor was looking for and the agent unsurprisingly said £525k.
We had a discussion with the agent around uncertainty in the market, recession and Brexit just to set the scene. I then put the feelers out there on an offer of £515k.
He said he expects the vendor to reject the offer, but if it is going to be our offer, then submit it in writing with details of our financial position.
We drove home, still bouncing with excitement and massive smiles on our faces.
We’d found the one.
Preparing for an offer
Once home, we conducted some initial due diligence before deciding on our offer. Some of these were done prior to booking the viewing, but we needed to re-do others just to remind ourselves and to pay closer attention to them.
- Zoopla and Nethouseprices – I use these sites to see past sold prices on the road and nearby. This helps me decide if the property could be over or underpriced.
- Property Tracker – Chrome extension to check the history of the property listing and any price changes over time. It will show the number of times the property has reduced its price and when.
- Street Check – check local data including data from the last Census.
- UK Crime Statistics – check the official local crime data. It also allows comparison of postcodes and to set up alerts.
- Planning Decisions Register – check planning applications for all local developements.
- Tree Preservation Order – there is no link to this because each local authority will have a portal. Search for “[INSERT LOCAL AUTHORITY] tree preservation order mapping”. This will bring up a useful mapping tool used by the specific local authority showing any tree preservation orders in place. Some local authorities also allow layers to show planning application, road works etc. I mainly use it for the mapping. They’re to scale with boarder lines and has tools to allow distance measuring and plot size calculations – very useful for the initial planning of any building work or major renovations.
- Flood Risk Levels – check flood risk of the property.
- Flood Risk Mapping – mapping of the flood risk.
- Ofcom Broadband and Mobile Checker – check broadband speeds and mobile signal for the area.
- Defra Air Quality – check air quality in the area. See also: BBC Pollution Checker and IQAir.
- Climate Central – check for the potential long term impact of sea level rise for the area. I have no idea of how reputable this organisation is; but it claims to use the latest scientific evidence to map our sea level rise by 2050. This is subject to limitations and assumptions. It cannot factor in any future flood and sea level defences because that’s not known. I take this with a pinch of salt, but interesting to see.
If the area is at risk, I would then dig a little deeper into Shoreline Management Plans and any relevant reports by the Climate Change Committee.
Making an offer
We made a formal offer in writing of £509k and laid out our position and reasoning. It was a 3% reduction from what we were told the vendor was looking for. This was mainly due to lots of uncertainty in the economy and the housing market. We also explained our advantageous position of having accepted an offer for our home from a BTL investor, we had a mortgage agreed in principle and our solicitor is all lined up.
The agent got back to us that same evening saying he has passed it on to the vendor and they were considering it.
First day went by and nothing.
Second day passed and still silence.
We thought we must have offered too low. This was when reports were slowly trickling in about a mini housing boom.
On the third day we received a phone call: offer accepted!
In hindsight, I think the price we went in was just right. Not too low for an immediate rejection. Not too high for an instant yes. It was enough for the vendor to give it some serious thought and it could have went either way.
Money, money, money
With the current residential property having generated quite a bit of income for us; we didn’t want to have a ‘home’ in the future which wasn’t earning something for us.
This was why it was important that we found a property with the potential to build a separate two-bed annexe. This would allow us to rent it out, but also provide a safety-net for when or if mother in law needs to move in with us.
The two-bed annexe would cover the vast majority, if not all of our mortgage.
We managed to secure the following mortgage:
Mortgage Term – 34 years
Mortgage Rate – 2.18% fixed for 10 years
LTV – 75%
We debated whether to have such a long term. In the end we decided that since interest rates were relatively low and we could fix it for 10 years; it would make better sense to invest the money we would have paid had we gone with a shorter term or smaller mortgage.
When the time comes to renew the fixed rate, we can decide to pay off some of the loan or keep investing the money. We’ll do whatever the maths dictate at the time. It will depend a lot on the return we get over the next 10 years, but also the mortgage interest rates available when the time comes to renew.
There is no doubt about.
The mortgage is big!
However, we feel comfortable with it.
In the event mortgage rates hit double figures during the term, we could sell up one of our other properties to pay off the mortgage. Alternatively, depending on the timing, we would have lump sum payments from our various investments and pensions which could be used. As a last resort, we could even split up the land and sale the two-bed annexe.
We’ve set aside a budget of £150k to do some renovation and building work which I intend to document here (if the purchase crosses the finish line). It should make for some interesting reading because I plan to project manage myself. Be prepared to learn from my mistakes!
Finally, the stamp duty holiday will save us £15,000 in stamp duty tax. We consider this as a nice bonus but not a deciding factor to go ahead with the purchase. If this property had not come along and ticked all the boxes, we would have stuck with our original plan to invest the money and buy our home further down the line.
So here we are, three months in and we haven’t exchanged yet…there has been quite some drama and things have not been as straight forward as we hoped.
We’re used to buying properties, but because this one will be our forever home, I feel more anxious and nervous about it all. With the others, I didn’t care how long the purchase took or whether it fell through. There will always be another investment property and it didn’t matter when they came along. With a forever home which ticks all our boxes, I feel a lot more connected to the whole process and the property itself.
In the next part, I go through what we discovered in our Level 3 RICS Building Survey and how things turned sour…
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