August 01, 2002

Homeowners

Today we completed the purchase of the flat I wrote nearly two months ago that we were being kicked out of.

It’s been a nerve-wracking two months, as we had to arrange a mortgage before 25 July, when the flat was due to be auctioned. Last Monday it still seemed hopeless.

The sale’s story is a fascinating one, of our own struggle and the iniquities of the London property market.

1. 1 May: The letting agents phone — bad news — the flat had been sold and we are given 2 months notice to move out by 1 July. We’re distraught; had been living here 2 years and 8 months and are very fond of the flat.
2. We ask letting agent why they didn’t offer it to us, as we asked every year when we renewed our lease. Letting agents say some legal thing about tenants not being able to buy the property they’re renting (which is BS).
3. We assume it’s hopeless, and go flat-hunting. Put down a £200 deposit on a flat (see 5 May post).
4. Still unwilling to accept our loss, we contact the managing agents and find out from them that property is not being sold as alleged by letting agent, but is going up for auction and needs to be vacated before that.
5. We ask managing agent what chance we have if we make an offer.
6. Managing agent — the hero of the story* — very kindly supplies contact details of the owners, a company. (Hereafter referred to as the sharks.)
7. We phone sharks; our shark says, OK, you can make an offer. They’re sending someone to value the property.
8. We get our own valuer in who says it’s worth £150k. So does the shark’s.
9. We call shark and brazenly offer 140k; he scoffs. We offer 145k. Witheringly, he says he’ll put it to the board.
10. 5 days later our offer is accepted.
11. We kiss goodbye to our deposit on the other flat.
12. 1st mortgage application turned down due to a credit check, but the bank aren’t allowed to tell us why. We first assume bad credit, request our credit files which show no black marks, or hardly any information at all. This turns to be the problem. Apparently our refusal to use credit cards and live in debt makes us a poor credit risk. Finding this out wastes three weeks.
13. Apply at another bank with only 21 days left to beat the auction date.
14. Bite nails and hassle bank staff daily.
15. Success! Mortgage offer arrives with 2 day to spare, we exchange contracts the day before the auction. A week later (today), we complete.

From our own knowledge, and what we learned from our solictor, we pieced together the following theory** of the flat’s history:

1. The previous occupant, Mr. M, was a long-time council tenant. Apparently alone, probably retired.
2. Under the “right-to-buy” scheme introduced by the Tory government in the 80’s, council tenants are able to buy their properties at a great state-sponsored discount. They forfeit that discount if they re-sell it within three years. Still, the system is widely abused and may soon be ended. Every month or so we get leafletted by companies offering council tenants a quick profit when they buy their properties with their help (bearing in mind most retiree tenants can’t afford to purchase their properties even at a discount). (See leaflet front, inside. This is the same company that owned our flat, incidentally.)
3. We assume that in 1998 Mr. M took advantage of one of these offers.
4. He is able to buy the flat for a mere £31k; the 1998 market value is £67k.
5. Mr. M is mortgaged to the hilt with the help of the sharks, who work in alliance with a particular bank. He probably signs an agreement to sell the property to them after the requisite three years, at which point he’ll see most of his profit. (He probably gets something up-front as well.)
6. Only he doesn’t pay his mortgage dues, so the bank takes possession of the property (but Mr. M remains the legal owner). We’re not sure whether this is part of the scheme, or was unexpected. The bank cannot sell it before the three years are up, however.
7. Maybe it is possible for Mr. M to continue to live in the flat during that time, but as far as we know, he leaves the UK for Jamaica. We rent the flat via estate agents who almost certainly have a cosy relationship with the sharks. (The rent we pay, incidentally, is 1500% the rent that council tenants pay in the same block.)
8. When the time arrives that the bank can sell the property and they, the sharks and Mr. M can make their profits, we’re given our notice.
9. Thanks to our managing agent giving us the sharks’ number, we’re able to buy the flat before it’s auctioned.
10. Days before we buy it from them, the sharks complete the purchase of the property from Mr. M, for about £80k.
11. So the sharks have made a profit of £65k. It’s uncertain how much of a profit Mr. M made after clearing his debt; almost certainly not more than £20k.
12. The losers are firstly the council, who sold the flat at a £36k loss, and more importantly, future council tenants, for whom there is one less affordable property in London. It’s a ground-floor flat too, designed for senior citizens.
13. And we’ve managed to hold on to a cherished home, taken our first step onto the property ladder, teetering on the crest of a monstrously inflated property market.

*Actually, the real hero of the story is my wife, who is the royal “we” in all of the above as she made all the phone calls and personally beat down the shark’s asking price by £5000. After all that, who am I to begrudge her this?

**This is entirely our own reconstruction of the events and may be entirely wrong. If anyone else wants to correct or add any points, or take issue with it, feel free.

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