My Dream Home: after the morning after 

In my last post in this occasional series about my tribulations buying my Dream Home, I left my story at 9am on Friday 24 June – The Morning After – having just received an offer for £100k less than the ‘actual’ value of my old house.  I asked for views on what I should have done next.  And I got some wonderful comments with real wisdom – a real testament to the amazing insights in the UK’s FIRE community.

The first comment came from RIT, suggesting I should have taken the money and run:

“Looks like either a very illiquid market or the price was to high to me. From where I sit I would have had their arm off and pushed for an exchange very quickly.” Retirement Investment Today

My approach wasn’t what RIT advocated, even though I think it is a very sensible perspective. I had several people giving me the same advice at the time.  In fairness to RIT, as LondonRob commented, the ‘right’ answer “partly depends on how much [I] really need the cash. It would also be good to know what the rental value could achieve.”  LondonRob said he felt a 10% discount to the asking price was too much, and so provided cash wasn’t an immediate issue he recommended turning the offer down.  This is indeed what I did.

What I hadn’t explained in my last blog is that yes I would like the cash from my old house, but no I am not desperate for it.  I have emotional ties to the property and do not want to sell it ‘under duress’.  I am pretty confident I will get a reasonable price for it at some point and can afford to wait. I also was wondering about its potential as a rental property, and felt pretty sure I could rent it out – albeit possibly at a low rental yield.  Had the rest of the market tanked between January and June I may well have been feeling more desperate for cash.  But in fact I had already made almost £1m in paper gains this year and this had boosted my resilience, so I was not in much of a mood to compromise.

The next comment came from Mark:

“I would be sorely tempted to hold my bollocks and put the price up. Reason? A good proportion of the buyers might hold assets, and perhaps also receive income, in currencies other than Sterling. And whatever your view of the EU vote, it was clear that a decision to leave the Union would drive down the value of Sterling and hence make your property markedly cheaper for inbound American and German investment bankers.” Mark

Mark hit my nail on the head.  What I did over the weekend Sat/Sun 25/26 June was tell both my agents that I had an offer in roughly the right zone and they had both move pretty quickly.  Specifically I said that given that the pound had just fallen by 10% this meant the house was effectively ‘on sale’ and I would expect a better, winning offer within a week.  The agent who had found the buyer was to make it clear to the (British) buyer he would need to raise his price, and the other agent was to go to any non-UK buyers who had been sniffing and tell them that they would need to put in an offer quickly or else they would lose the property.

What happened next was that my British buyer came back on Monday and upped his offer by £100k to X.  Hooray!  As RIT pointed out, it wasn’t clear from my last post that X is the right value of the property, but it is a marker – and X was a price which I was up for selling the property at.  Especially given the shock/awe from the referendum result.

What I did next was accept the offer of X.  Subject to exchanging within two weeks’ time.  Interestingly I wasn’t asked to take the property off the market, so I didn’t.

I remember the next few days well.  And how I wish I had had GreekTaxPayer’s advice in advance of that period.  What he/she said is repeated below in full:

“If exchange/completion were instant, I would have sold it. But given the timing of the offer (the very morning after the referendum!) and that it’s always “subject to contract” I would be hesitant. The timing indicates lowballing, at least in their view. They presumably considered fair value much higher, say 1.05x and never showed a bid before in anticipation of the referendum result. The only reason to rush with a bid at that time would be if they thought they were getting a bargain. Presumably they wouldn’t be alone in that thinking, which is probably the reason for the absence of bids before, as opposed to overvaluation. Hitting that bid would set a ceiling to the final price. If they thought at some point later, prior to exchange, that they weren’t getting a bargain after all, I would expect gazundering or walking away. Which means that I wouldn’t have access to the sale proceeds (or even knowing whether there would be any) until much later, which means I would effectively be short an option, at a period of increased volatility, i.e. when options are more valuable.” – GreekTaxPayer

After a week there was no sign of activity at all on the part of the buyer.  No surveyor appointed, no lawyer appointed, no extra visits.  Nothing.  I started to become suspicious.

Worse than no activity on the part of my buyer, there was no activity on the part of my agents. The reality quickly dawned on me: both my agents had taken their eye fully off my ball.  In their heads, my property was now a sure thing – a deal that was going to close, at a price which had been agreed.  They had bigger fish to fry – in fact they had a pretty stressful few weeks in the aftermath of the referendum vote.

I pestered my agent about the buyer.  He said that while the buyer wasn’t in a chain, he did need to sell some (commercial) property assets before he could ‘comfortably’ complete.  When is a chain not a chain, I wondered?  Commercial property was making headlines everywhere I looked, with the leading funds all imposing redemption ‘gates’ on their investors amidst a general panic reaction to the referendum.  I didn’t want to be selling commercial property assets in July and I was pretty sure my buyer wasn’t going to want to either.

Gradually it dawned on me that my buyer had basically bought himself a free option.  Exactly as GreekTaxPayer said, I had sold it to him (for nothing, grrr), so I was short of optionality when the market as a whole was more volatile.  Doh.

With hindsight I should have asked for a £5k-£20k non-refundable deposit before accepting the offer.  But, given that I wasn’t giving a running commentary with my blog, I lacked the wisdom of my wonderful readers.  There is a lesson in there somewhere for our Prime Minister and her government, but that is another topic.

As July rolled on, it was clear that I needed a plan B.  I wasn’t getting more buyer enquiries and I didn’t have a credible alternative to present to the buyer.  But July is a useful time of year because it is just a few weeks before the peak rental season, the Back to School period.  So I decided to pursue a rental tenant as my alternative to selling the property.

I pretty quickly appointed a rental agent.  I used a different agent from the two selling agents.  And I told them all that I would sign the first reasonable contract they could put in front of me.  The selling agents duly rustled up a couple more buyers.  The original Buyer remained nowhere to be seen.  But lo and behold I immediately had a few rental enquiries who came to check the property out.

Very quickly we got a good offer for a rental, and I ended up concluding a tenancy with them.  Relocating (North) Americans.  They wanted a one year lease, renewable. In other words they want a giant option over the house.  But they are paying for it – a rental income of just under 3.0% of X (and around 3.5% of my equity in the house).  This certainly isn’t an amazing investment income for me but it turns a cost centre into a (taxable) profit and it means I retain ultimate flexibility over the property.  As the weeks have gone by, and the pound has fallen further, and the Tory government looks ever less likely to propose anything radical regarding housing/planning, the more confident I become that there will be some serious property price inflation in the next few years.  I am pretty sure I will get 1.20X+ for the house when I eventually come to sell it most likely some time after 2020.  I will be liable for a little bit of Capital Gains on the property but that only kicks in from late next year and then only slowly.

I have become a reluctant landlord of my previous home.  I still haven’t seen a penny of positive cashflow from the property, due to the letting fees, the regulations around deposits and the horrendous cashflow profile associated with a new tenancy.  Hopefully I will get something by Christmas.

12 thoughts on “My Dream Home: after the morning after ”

  1. Ah good to hear what is going on and sounds like those buyers were a waste of space. If the cash isnt urgent and you can rent in then at least thats an additional source of income, and potentially help to reduce the outstanding loan you took.
    I will ask the obvious question that I am sure the answer is yes, but I assume you have also run the numbers based on the impact on your income with the new BTL changes coming in?

    If you have good tenants and can keep them for a few years you should have a nice little comfort there!
    London Rob

    Liked by 1 person

  2. Sounds like I was right that the price was too high or the market was/is extremely illiquid given your one ‘buyer’ was all fur coat and no nickers and there weren’t even any other tyre kickers.

    Before you get too deep into being an ‘accidental landlord’ just want to make sure your familiar with the Section 24 changes that start to taper in from 2017? If you’re not it might be worth a quick read as a high earner like your good self may see a significant tax increase if your funding being a landlord with debt.

    Liked by 1 person

  3. Very interesting. I can’t say I’m surprised by the outcome (obviously!). Renting the house out is probably the best option at the moment, unless you need the capital in the short term. The capital, not the cash, because you can have access to the latter via a cheap mortgage. 3% yield is higher than average for London I think, and in a world starved for yield (still, even after the recent uptick in long term yields) a decent “hold” at the very least.

    I am less sanguine than you regarding the medium term market assessment. FX driven price adjustment is not automatic. Some people may behave that way, but ultimately the market will move by fundamentals, and these very much depend on housing demand, which depends on the London job market, which depends on the continued growth of certain industries that are in the eye of the Brexit storm. Take a few tens of thousands finance jobs out of London (and several more from the spillover effect on other industries) and you automatically have less demand for housing. Unlike the previous shock (2008), currency weakness may not only fail to help but may make things even worse. The reason is that in 2008 the currency depreciation was associated with (if not driven by) a dramatic cut in interest rates that lowered mortgage costs and made buying way more attractive. This is not an option this time, as mortgage rates can not really improve much further. On the other hand, foreign investor demand is now more aware of the currency implications, and as they are after capital gains and momentum, they may actually be put off by currency weakness.

    All that said, I believe that in the end the worst case scenario will not materialize, the London job market and thus housing demand will remain robust and eventually the housing market will catch up to all other assets that it has massively underperformed lately. And that’s why I said above that renting the property out in the meantime is probably the best option.

    Finally, a note regarding the (lack of) transaction. It is unfortunate that despite the importance of the housing market in this country and the relative sophistication of the the finance industry and other relative professions (legal etc), transactions are still pretty much a gamble making both buyers and sellers effectively short optionality and causing an emotional roller-coaster. Products such as gazeal ( should help if they gain enough traction. Disclosure: I have bought shares in Gazeal so I have a vested interest in it taking off – but even if it is not this particular product, something similar is definitely needed.

    Liked by 1 person

  4. It would be great to get an update on your thinking about the house, given the current market weakness. Have you changed your view on where the value will be in 2020?

    I believe that the market will continue to soften for the next 2/3 years. I can’t see a catalyst for a positive inflection in demand but supply is exploding. Countless blocks of luxury flats, commissioned when the consensus was for perpetual price growth of 5-10% in London, are hitting the market and will continue to do so for another year or two. Walk around Kings X, Battersea, South bank and consider who will buy all these £1m 2 bedroom flats.


    Side note: I recently came across your blog and now can’t get enough of it. It’s great to see ‘personal finance’ being discussed at a more sophisticated level. There is also a wealth of knowledge and thoughtful discussion in the comments, for a change! I will try to contribute where my expertise is appropriate. Thanks for taking the time to write these posts.

    Liked by 1 person

    1. Hello @London Nick! Glad you like the site. Please spread the word, retweet, etc!

      I have just re-read my own blog post, and am interested to see I was expecting 1.20x by 2020.

      What are my latest views on my 2020 potential value? I don’t think about this very much. What I do think about is the monthly rent – which is quite a key source of income for me – as well as the relationship with the tenants, the work the house requires, the fees my agent charges, etc.

      However to your question, what value do I expect in 2020? In fairness I probably don’t expect much of a change in value from 2016.

      I’m not really competing with the new build luxury flats you’ve cited, and my old house is definitely in a ‘they are not making many more of these’ category based on its location. So far, so not-very-exposed to the Battersea/Aldgate/etc glut.

      And while the GBP fell in 2016, and hasn’t fully recovered, it has partially recovered – at least against the USD. But if Americans aren’t seeing much cheaper London property than they would have seen in 2015, Germans/Dutch/French/etc are.

      Meanwhile, the upper market in London is definitely struggling. In fact I think in the location I’m in prices have probably fallen by 5%. So overall I would probably sell for 1.0x the price I agreed back in 2016.

      Would I sell for less? That will depend on interest rates. If they go up by 100bps then I will probably be keener on liquidity (being a net borrower) and also assume that affordability ratios have all been hit, taking my house price south too. If rates are substantially unchanged I think my value hasn’t changed either.


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