Ater 20 years of playing cat and mouse with the London property market, maybe I needed a big dog to get me into home ownership.
But I never thought it’d be the boss of a major bank.
It was Spring 2017, and I was visiting an ex-girlfriend. As usual, I was singing her new-ish flat’s praises. My ex knew I’d wanted to buy my own home forever. She’d seen me go dreamy in Habitat. She’d caught me scrolling through Rightmove like a home alone teenager discovering PornHub.
She’d also suffered many long explanations as to why I hadn’t bought my own place in London – despite my living here through most of a 25-year property boom.
I could have bought, barely, somewhere dodgy, in the mid-1990s, I’d begin, but I got greedy for a nicer first purchase in a better area… but then I couldn’t buy because I had just gone freelance… then prices doubled in what felt like 12 months… even so, I almost did buy in 2003… but then I pulled out on fears that London really was ludicrously overvalued and the whole financial system was bonkers… and after that I wanted the money to invest…
On and on I went. All true on one level. Waffle on another.
My ex’s attitude: “If you want a home of your own to live in, buy one if you can. It doesn’t matter if it’s the right time – you’ll make it work – and it doesn’t matter if prices go down – they’ll go up again. In the meantime, you live your life.”
I’d heard this many times. My dad said much the same when I left university. Battered by two decades of astronomical price rises and the absence of the sustained crash I’d expected since the early 2000s, I no longer saw such sentiments as naive and anti-historical. I now saw them as pragmatic. Maybe even worldly wise.
Even so, I continued, we had to consider that –
She interrupted my 50th explanation of some issue or another I had.
“You’re a smart guy,” my ex said, generously. “If you really wanted to buy your own place you’d figure out a way. So do you want to? Really?”
It was a fair question.
I didn’t have reasons why I couldn’t buy, even though I wanted to.
I had reasons why I wouldn’t buy, even though I could.
Let’s leave the laundry list of why I wanted to get my own place for that great unfinished article in the
sky drafts folder.
Suffice to say I mostly still thought it was an awful time to buy a London flat. But I really did want to own.
I’d had this as aspiration for almost as long as a couple of my friends had been alive. It didn’t just feel like unfinished business. Much more delay and I’d be repaying a mortgage in my seventies. I wanted this monkey off my back.
Also, one of the few reasons why it was perhaps not a terrible time for me to buy was I knew the UK banks had lots of spare capital and wanted a return.
This might not sound like a big deal. However in two of the three times I’d almost bought before – the mid-1990s and 2008 and 2009 – the opposite was true. They were good times to buy property, but they proved impossible times for me to get any financing.
I’d come to realize there was a tension here. I’d probably need to buy into-the-cycle, when banks were more willing to lend and my portfolio was riding high, rather than contrarily in a crash.
You see, my financial position was weird.
Yes, I had a decent net worth for somebody who’d stupidly missed the great London property lottery that had floated friends towards millionaire status for about the cost of my rent.
But my own money had mostly come from saving a huge proportion of my income for decades and aggressively investing it – two things seemingly unheard of by the average mortgage-granting banker.
What particularly bothered them was my income.
I’d earned well below the higher-rate tax bracket in my 20s and for much of my 30s. I’d then used VCTs to keep my take home income below the 40% band, before turning to big SIPP contributions when the pension freedoms came onto the horizon.
This all mattered because even those banks who’d look properly at the self-employed – and who’d squint a bit at the full accounts to see the potential as generously as possible – wanted to picture a hefty income coming in every month.
I’m no pauper – I count my blessings. But the fact is in a city where by 2017 the two-bedroom flats I wanted started at well over £500,0001 and banks lend 3-4 times income, I didn’t make the starting line.
A miser for ISAs
The obvious solution was to liquidate some investments and buy the flat with cash. However this was about as attractive to me as a two-for-one deal on enemas:
- At the time, in early 2017, I felt global shares were still pretty good value, not least compared to London property.
- Crucially, most of my investments were wrapped inside precious tax-free ISA wrappers that I was loathe to lose forever by liquidating.
- I was concerned about Brexit. I didn’t want to go all-in on Sterling by swapping my overseas shares and foreign earners entirely for London real estate – not when I foresaw many years of posturing and national foot-shooting nonsense ahead.
- Investing had become my passion. My liquid capital was “the water I swim in” I’d portentously said to a friend who suggested I sell my shares and buy a place. The thought of starting the snowball again from scratch was too depressing.
- I was vaguely discussing setting up my own active fund at this time (another story!) and as part of this I was using my portfolio as a proxy for a professional track record. My money would also need to be part of the seed capital we’d kick off with, at the least to show my commitment.
- Finally, I hate change!
My reluctance to sell shares was a tad ironic. I’d started my stock market investing in despair at the London property market, pumping my flat deposit into shares in 2003. Perhaps it was illogical to not want to reverse that trade.
What was logical though was wanting to keep hold of my ISA wrappers, which I’d built up with 15 years of annual allowances. ISAs are a fabulous perk for UK investors – still routinely underrated. Thanks to my ISAs, I could compound my wealth for another two or three decades mostly untroubled by the tax man.
Did I really want to trade this glorious tax shield away for leaky gutters and a dodgy boiler?
Maybe it’d have been easier if I’d expected big tax-free gains from whatever flat I bought. Finally enjoying the massive own home tax break that’s invariably taken for granted by homeowners was a sensible reason why I wanted to buy. However I saw near-zero prospect of windfall gains from London property anytime soon.
No, the ISA fortress was the one concrete benefit I’d gained from abstaining from buying property. I was loathe to give it up.
Forcing myself to try harder
So there I sat in a trap of my own making. My flexible take on what some keen types call Lifestyle Design had enabled me to work as I pleased, enjoy long walks on weekday afternoons, teach myself active investing, and amass a six-figure sum sufficient to buy outright a flat I wanted – all with only a couple of short stints in a regular office job.
But set against that I had only a small income by London standards to show a bank, and a horror of liquidating my tax shelters.
If it was the mid-1990s, it’d have been easy – I could have sold just a fraction of my ISA holdings. But my years of timid and querulous bumbling in the face of the London property cage fight meant I needed a small fortune to seal the deal.
My ex-girlfriend appeared before me like Obi-Wan Kenobi.
“Use the force,” she commanded. “Let it guide your actions”.
Perhaps I’m misremembering.
Oh yes, she thought I was a smart guy – or at least that was what she was saying now we’d split up.
I was a pretentious one, too, I pondered. Hadn’t I told an unfortunate friend that I was like a fish flapping about in a bank account or some similar tortured metaphor about my good sense with money?
If I really wanted to buy my own place then I could surely find a way.
For good or ill I did want to buy. And so the game was on.
I quickly established the traditional banks would not help me. Even the one I’d kept since my student days partly in case I ever needed a record of my long financial probity was no use. They had their procedures, and lending me ten-times my income wasn’t going to get through their sausage machine, even with a chunky deposit.
Some high-flying types, such as the blogger Fire V London, have used margin debt to buy a property. What’s more, he’d favoured a margin loan despite having a private bank account that, as I understood it, he kept around precisely for such DIY financial innovation.
Could I similarly consolidate all my investments with a broker that offered margin against my portfolio and then draw out a half a million quid or more to add to my deposit and buy a flat?
Well, perhaps, but I didn’t entertain the idea for long.
I hate debt, and I hated the idea of borrowing to invest.
True, borrowing to invest is what everyone effectively does when they take out a mortgage whilst investing elsewhere – even into a pension. That may well be a sensible strategy (particular in the case of a pension) and in practice lots of people rail against it while doing it themselves (because they compartmentalize their mortgage and their pension and ISAs into different buckets). But once you get beyond taking out a mortgage to buy your own home, the risks multiply.
As I wanted to keep my ISAs and stay invested while taking on debt, I would have to play the borrowing to invest game. But I wasn’t going to do it on margin, that was for sure.
What’s the difference?
With a mortgage, you repay monthly amounts as agreed with a lender when you arrange the mortgage. As long as you make those payments, the rest of your financial life is in practical terms irrelevant from its point of view (at least until you need to remortgage).
In contrast, margin debt is typically borrowed against a portfolio that’s marked-to-market. As shares in your portfolio fluctuate in price, the total value of the portfolio is recalculated (that’s the marked-to-market bit).
If shares go up no problem. But if your portfolio loses money then you risk breaching your borrowing limits. This is when you’re required to make a margin call – which involves topping-up the asset side of your ledger with fresh cash to bring down your ratio of borrowing to assets. At best this means you need to add more money, assuming you have it. At the worst, you – or even your broker, without your say-so – could be required to liquidate your portfolio at a terrible time, impairing your finances forever.
Such an approach might make sense for a sophisticated super high net worth investor who is also a high-earner and who likely has other borrowing avenues open to them if required (such as bridge loans) or an ability to sell other assets in a crunch (second homes, cars, jewels, Banksy paintings, and so on).
Nah, nah, that’s not me.
I wanted a mortgage – the safest and cheapest form of borrowing there is. And I wanted to fix it for a long period, so I would hopefully have time to regroup should any calamity strike.
Could I get one?
Stay away from my precious!
As I saw it, I was a super-safe borrower.
For a start I had at least 20% ready as a cash deposit. I’d been steadily setting aside a good chunk of cash into savings accounts, premium bonds and the like, and I’d also raised money defusing capital gains.
I believed this 20% deposit already gave a lender a lot of cover in a 5%-down world.
Then there was the fact that I was demonstrably good with money.
I already had the assets to pay off the mortgage from day one. I just didn’t want to sell them unless I had to. It was the proverbial opportunity for a bank to lend me an umbrella when the sun was shining.
Compare that to a traditional first-time buyer. They have a small deposit saved – or more likely these days donated by their parents – plus the promise of a salary. Their potential was in the future. Mine had already been realized.
I was also a bit self-righteous in that I believed my track record should count for something. How many first-time buyers in London go to a bank without super high-earning jobs, a partner, or a holdall stuffed with cash from the death of a loved one? Very few.
Clearly I would have to sit down with somebody to make my case.
My first serious attempt was with a broker attached to one of the estate agents in London. The agent was in her early 20s and didn’t seem to know much about investing. But to her credit she understood my desire to stay invested in the ISAs, asked sensible questions, and made promising noises about specialist lenders who would look at me favourably.
Of course, she said, you’ll then transfer all your invested cash to our own fund manager to manage when you get the mortgage.
They needed to be sure I wouldn’t make terrible investing decisions, you see, or spend the money once the mortgage was secured.
But but but… we’d been through all my paperwork. The agent saw I didn’t earn a fortune, but I had a relatively large amount of money. Didn’t this show I was (a) good at investing and (b) not one of life’s great spenders?
Why would I give my money to an expensive and mediocre manager to potentially throw my portfolio in reverse?
The agent made sympathetic noises but it was no good. I had found a human face to the computer says no.
Challenger blows up
I didn’t give up. I saw there was some flexibility out there, even if there might not be quite enough for me.
Perhaps I could cut out the intermediaries. I turned my attention to the challenger banks. I’d read a lot about how they aimed to do things differently – heck I was even invested in one – and I wanted to do something different.
Pretty rapidly I followed a chain that led me to a manager at one of the UK’s challenger banks who told me that yes, he thought what I wanted should be possible. He’d get back to me with the forms and we could get the process underway.
Only… the promised forms didn’t come. I chased him up but he was unavailable. An assistant relayed the message that the paperwork was being updated, hence the delay. The delay continued. I pressed, he evaded. Finally I pinned him down and he said he couldn’t do anything for me. However here was the number of their mortgage specialist and they could sort me out.
I called the number and was asked for a few details. No, they couldn’t lend me that huge amount of money. They could lend me four times my income or thereabouts. Maybe a bit more for affordable good behaviour.
I had gone through to a standard mortgage inquiry line. They had no idea who my contact was, and they didn’t really understand what I was asking for anyway.
We agreed it would be best if I hung up.
It takes a fair bit to annoy me to the point of feeling physically cross, but at this point I was hot-heated. I found my housemate sitting on his PC deep into Elite: Dangerous and bombarded the disinterested back of his head with an update.
“I should write to the bank’s CEO and tell him his publicity is full of it,” I ranted.
“Yes why not?” my friend said disinterestedly, as he traded his space ship’s cargo of bootleg liquor for a case of neofabric installation at a way station at the far reaches of the Heart nebulae. “I bet he’d love to hear from an angry customer setting him straight.”
As it happened, I remembered an interview where the boss in question had claimed that he really did read all customer feedback. Was it worth a try?
A vision of my ex-girlfriend fuzzed back into view.
“Use the Force,” she intoned. “You’re supposedly a smart guy. Giving up instead of going all the way to commitment is exactly why it never worked out between us. Also for the record I didn’t really like dressing up. I was just trying to be nice, you perv.”
Screw it, I was going to do it!
I quickly found the chief executive’s email address and within a few minutes I’d sent a polite but disgruntled message.
I won’t republish it here as it contained a few personal specifics. In summary I told him I already had more than I was looking to borrow, that I didn’t want to sell down my ISAs but I could if I ever needed to in order to meet repayments, I had a 20% deposit, and incidentally, his people hadn’t read the memo.
It felt good to outline my case. At least I had tried, as I told my housemate.
“Yeah, well, you think you’ve got problems – I’ve got alien stowaways feasting on my illegal narcotics.”
It seemed a fitting epitaph to my wild goose chase.
Obviously I didn’t expect to ever hear from the CEO of the challenger bank.
Certainly not as soon as the next morning when – before 9am – I had a reply from his email account.
They’d let me down and he was sorry, he said. At the least I should be heard. He’d cc-d two colleagues who he was now directly asking to look into my case.
I googled. The two names were directors at the bank, and I don’t mean American-style Director of Being Third Intern. I mean proper directors who sat on the board and oversaw billions.
Before lunchtime one of them was on the phone with me. It was a super conversation – he was a friendly and urbane type – of the sort you see in serious movies about financial titans discussing corporate actions. Or maybe that was in my head, but he took me seriously. He not only understood my motivation regarding the ISAs, but said he’d done something similar for the same reason.
A few days later and I was in a meeting with him and the private banking specialist who been assigned to me on account of my unusual circumstances. This fellow was great, too, and I was frustrated at the end of it all that I wasn’t actually of sufficiently high net worth to keep him!
I’d worn a great suit for the meeting, and had duplicates of paperwork I’d prepared. This not only covered my current assets – evidence of what money was where – but included projections of how my assets might grow in three different scenarios over the lifetime of the mortgage. At this point the urbane director politely excused himself, I guess persuaded that he wasn’t putting his name to the fantasies of a nutjob – or at least that if I was a nutjob I was the sort you wanted to lend money to.
From there, the process was much like you imagine getting a mortgage would be if you were doing it face-to-face in the 1970s. The bank was diligent in its risk assessment, and when my first attempt at a purchase fell through we had to go through most of the 20-odd page questionnaires and illustrations again. My man laughed as he explained several aspects of the risk warnings in the light of the fact that I’d previously presented my own investing models to a director, but he went through them just the same.
I eventually did take some money out of an ISA to buy the place I wanted at the interest rate I was after, but it was only a small fraction.
Finally, six months or so after I started with the challenger bank and nearly a year after I’d decided to go for it and buy a place, the money was transferred and I finally bought my flat.
Home, a loan
I am very grateful to the bank for finally hearing me out, even if I think it’s crazy that they and the others found it so hard to initially make the space to do so. I suppose it speaks to how rare a situation like mine is.
The bank didn’t explicitly confirm it wanted any publicity about all this when I asked, which is why I’m not naming it. I imagine the CEO gets a lot of emails! I’ve recommended them to friends though.
There’s a post to be written about why I chose specifics of the (fixed rate interest-only) mortgage I did and I should also explain how having all this debt has changed my investing style (for the worse, in terms of returns, but that’s partly because I’m much more risk averse now.)
But let’s conclude for now in early 2018, with me taking ownership of my own place in the midst of the first sustained price falls in London for decades. (Property, eh? Can’t lose!)
Have I now made a habit of emailing bosses when I don’t get my way?
I have not. It was a very out of character action for me, as is usually required by the hero of any story in resolving their conflicts. (Seriously, just read your Joseph Campbell).
What I did do though is profusely thank my ex for kicking me up the backside. She was one of the first to have dinner at my new place!
- Compared to about £50,000 in the mid-1990s! Sigh.