How to buy a flat when you have no money

I bought a flat in London, with £4000 down payment. Yes, you read that right, four thousand pounds. In today’s post I am telling you how that happened.

London is globally known for many things…train delays, terrible politics, overcrowding, skyscrapers with idiotic names…and expensive residential property. And yet somehow I managed to wiggle my way onto the property market with just £4k scrapped together. Here is the exact story of how I did that.

Let’s step back to 2012. I am living in a studio flat in a converted Victorian semi, the heating keeps breaking down and there is a serious mould problem. I won’t last another winter in this place, but I can’t afford to move to anything better – this studio already costs £550 per month plus bills which is a lot for my earnings. Here are my options: rent a room in a shared house, appeal to the council for housing or look at government schemes for people who are barely making enough to not fall destitute.

I don’t want to live in a shared house and the council couldn’t care less about able-bodied single female with no descendants. This leaves me to look at government schemes. There are a couple, one being ‘rent to buy’ and the other ‘shared ownership’. At the time the newest one, ‘help to buy’ is not yet available.

My first port of call is a bit of research.

‘Rent to buy’ is an option where you rent a property at 80% market rent with an option to purchase it after a set period of time. They are all very nice, brand new properties and I can’t afford the 80% rent on any of them because the ones I ‘qualify’ for all start at around £900pmc plus bills. My budget is £600 plus bills at most. So that’s a definite no-go.

‘Shared ownership’ (now called Share to Buy) is a bit more complicated – you purchase a ‘share’ of a property and the housing association owns what you haven’t purchased. You then pay rent (discounted) on the share you don’t own. You don’t share the house with another actual person as the name might imply to people who live in shared rented houses, you just don’t own it all. It looks like this in figures: a property is worth, let’s say £200k. You purchase 40% share (worth £80k). You don’t own the other 60%, a housing association does. The rent on these properties is heavily discounted and is calculated like this (‘value of the share not owned by you’ /100) *3= annual rent. In this case this would be (£120k/100) *3=£3600 per annum or £300 per month.  You would also pay your mortgage if you are mortgaging your 40% share, and a fairly low service charge. The figures look great. The main stumbling block is that these properties are also sold on priority basis and I simply am not a bad enough of a case or not important enough of a case to get my pick. This, after much research, leaves me with an option of looking for shared ownership, but through resales.

Does it sound complicated? Property market is complicated so I hope you’re following because we’re not actually even started with my journey. Let’s start it now, knowing that I am targeting properties which are shared ownerships being sold on by original sellers.

Step 1: How much can I afford?

To buy a house you need some cash. In my case I was penniless and therefore I decided to pull up my socks and get saving. Coincidentally this is where I stumbled upon Dave Ramsey community. To save specifically for a house I opened a savings account with Nationwide – one of a small number of banks offering 5% deposit mortgages at the time, if you had a specific savings account with them. Now these mortgages are again a bit more common AND you can also get a ‘Help to buy’ ISA which the government will top up for you for specific amount – literally free money. Go look it up if you are in England and hoping to buy a property.

I had nothing, but I figured out that I could save around £6000 by the time I would want to buy in the 1st half of 2013. Around £2000 would be for various fees, and the remaining £4,000 would be my deposit. This would limit my mortgage heavily to no more than £80k but earning peanuts I didn’t want that big of a loan. I decided to aim under £50k and buy anything suitable I can get for that. To review my assumptions, I called up Nationwide (not sponsored) who would be my lender and discussed my affordability. They green-lighted my suggested figures so I started looking at the properties.


Step 2: Finding the right property

You don’t necessarily find shared ownership properties in the way you find regular property. To view listings there are two things you will want to do: firstly, look at share to buy website to identify the properties you might be interested in and secondly, register with every single housing association which offers shared ownerships within your target geographical areas.

Talking about geographical areas, at the time I was living in Streatham Hill – a lovely area which I could only afford by living in a sh*thole. I wanted to stay in the area BUT all the properties available were way outside of my £50k for the lowest share I can get budget. This means that I had to cast my net wider – my affordability would lead me to Norbury (nice enough), Thornton Heath (over my dead body, it’s not even London) and South Norwood (it’ll do). I won’t tell you where exactly I bought, but I’m still alive so it’s not Thornton Heath.

I viewed a total of 7 properties advertised by housing associations as ‘resale’, all dotted around those 3 areas – the owners were moving onto their next properties and offering theirs up for sale. Out of the 7 properties I fell in love with the first one I saw. I called up the housing association which it was with and filled in reams and reams of paperwork. It involved providing every single piece of my financial and residential information you can imagine. Honestly by the end of the process this housing association knew more about me than some of my relatives do.

The positive here is that because this was a resale, they were offering it up on first-come-first-served basis rather than on priority basis. Given that I was the first person to view it and call them back, they simply took my offer, passed it to the seller for agreement and then said that I could have it. By ‘I could have it’ I mean if I provided a whole bunch of documentation and money in a good time.

Step 3: Mortgage and purchase

Following the financial offer acceptance for the property (it was £41,200 exactly for a 30% share, with £4120 deposit) I went back to my bank and went through a 45-minute phone interview which resulted in ‘decision in principle’ qualifying me for the mortgage amount I wanted.

This was then followed by sourcing a solicitor which is listed as approved by the bank (the bank can provide you with a list if needed) and providing all information to the housing association. The purchase is then done in two steps: one being the exchange of contracts and the second one being completion.

There is a lot that happens before contracts are exchanged and it includes paying the solicitors and letting them hold your deposit, your solicitors conducting so called searches which include everything from planning permissions through to waterworks survey retrievals for the property, the housing association providing management pack including details of any major works and outstanding service charges, and your seller potentially finding another house to live in. note that based on the property value, it was exempt from stamp duty resulting in a serious saving.

Mortgage valuation survey carried out by the bank, building survey carried out by your surveyor (if you opt to have one done) and building works quotes (if you want to have any done) all happen during that time too.

I found my property at the start of April 2013 and moved at the end of August – 4.5 months is not a short time but also in property world is not a very long time.

The stressor here is that the lease on my property was due to expire at the end August, potentially leaving me homeless. My purchase completed on the 23rd August giving me a comfy one week after a lot of fretting over whether it would have happened. I moved on 24th August and that was that.

Step 4: Staircasing

Approximately 2 years later I ‘staircased’ my ownership to 100% property value, putting an end to it being ‘shared ownership’ and opening opportunities to either sell it on the open market or rent it.

Staircasing refers to purchasing greater share in your property and is something you will need to pay attention to in case you are wanting to own the property outright in the future as it is limited for some properties. Because since the purchase the property appraised in value, my 30% was suddenly worth much more than the £41,200 which I paid for it allowing me to negotiate an additional borrowing to allow the purchase of remaining 70% at a market rate at the time. if you have been following my budgets, now you know why I have two mortgages.

This involved, aside from speaking to my bank again, an assessment of the property by a surveyor and a slightly less extensive work by my solicitor to update land registry records and amend the lease. Staircasing is the one time where you want your property to be undervalued and in my case it meant: leaving the house REALLY messy for the surveyor visit, making it sound to the surveyor as if the area was terrible and downplaying everything that was good about my home. After he valued it at much higher than I hoped for it then included questioning the valuation, providing my own comparables (i.e data about similar properties sold recently in the area and an open market valuation by an estate agent unrelated to either the housing association or the surveyor) and demanding that the valuation be reviewed. In the end they knocked the price down by £20k and wouldn’t budge any further. The market value of my property was £137,330 when I purchased it in 2013. By the time I purchased the remaining share in 2016, it rose to £250k, which I knocked back to £230k in the negotiations. This resulted in me borrowing additional full £161k to own 100% of it. I then sold the property in February 2017 for £280,000, resulting in my £4k initial down payment returning, give or take, £80,000. I did not capitalise on this investment in monetary terms, instead I moved into a large two bedroom without increasing my mortgage. My equity in this two bedroom flat has now reached £110,000, assuming that it has not appraised since I purchased it two years ago.

What would I do now?

If I were to complete something similar purchase today, it would be possibly a little more expensive, but still achievable bar the final appraisal and sale which are always uncertain. It is not uncommon to find properties under £350,000 (full value) within zones 3 & further out of London and this really all comes down to how much you are willing to compromise on location in order to stabilise your housing costs. If you are hoping to purchase a minimum share of 25%, such share would cost £87,500 for a property valued at £350,000. Can you scrape together £5k? Then you have enough for a 5% deposit and in practice you will be able to find a home.

Alternatives to shared ownership and rent to buy such as Help to Buy equity loan scheme have also emerged recently, making the property market even more open.

Moral of this loooong story? If there is a will, there probably is a way but it’s not always straightforward. So do your research, keep yourself informed about different ways you can achieve your goals and be prepared to cast your net wide.

Ps. The photos used are the sale images taken directly from the property particulars used for marketing of my flat at the end of 2016 and beginning of 2017. You might recognise the interiors from some of my older YouTube videos.

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