31 Jan 2016

Cash Flow Nightmare

It's been a while since I last posted. Hope everyone is well!  It's strange to realise that although I've not had this blog at the forefront of my mind it still has it's own life and I impressed by how many views we continue to get.  Many thanks to all of you out there - I hope you have found it interesting and helpful.

We recently chatted to the very lovely Ben of HousePlanningHelp.com and recorded a podcast with him all about budgets and finance.  I've got lots of updates to do and this seemed like a good time to put on an archived draft post all about our finances during the build.  I neglected to mention a lot of this in the podcast, I think my mind has tried to block a lot of this out (apologies to Ben)!  As I say in the podcast the build was do-able but without a doubt the financial side of the project was the hardest part of our build.  If you would like to listen to the podcast you can find it here - Budgeting for our Eco Home.

I wrote the post below as a form of catharsis but Dimitri asked me not to post it during the build in case of any repercussions as nothing was in our hands and we didn't want to upset the lenders.

© Mark Bolton Photography


The whole mortgage & cash flow issue raised it head once again. I think this is the hardest and most stressful part of the whole project.  This keeps me awake at night.

If you remember, see here, early in the project the groundworks overspend blew through our contingency money and much more.  We knew that we wouldn't have enough money to finish the build.  But we spoke to the bank and they agreed in principle that they would be prepared to lend us more money. However, due to their procedures they could not authorise further funds until we had drawn down in full on the previously agreed amount.  Well we reached that point in early June.

To be fair, the previous two draw-downs were relatively straight-forward.  When we reached a completion of a stage (ours were foundations,  building the walls to the roof level, and then when we became watertight with windows and a roof), we would inform the building society, they then would instruct a surveyor to inspect the build, he would submit a new valuation and they would release some more money.  It took about 10 days to 2 weeks each time.  

So, at the last valuation in early June, our property had increased in value by 100K.  The building society only released 30K.  This was because we had reached the limit of the agreed loan amount and they do not release the final £20K until the building completion certificate is signed.  We immediately asked to start proceedings to increase our loan amount.  It took about a week but Dimitri was asked to do a phone interview with a Loan Administrator.  She informed us that this loan would be a separate and additional product but have similar conditions regarding the release of funds i.e. they can only lend 75% of the property valuation.  After crunching the numbers they gave us fantastic news that we could potentially borrow more than we were asking for, this would enable us to finish the house properly and potentially build the carport also.  They sent out paperwork and a request for the usual supporting documents.  We increased the loan amount request, completed the paperwork and returned it.  We were confident to proceed with the work on-site knowing that the loan would be forthcoming.

We didn't hear anything from them for a few days so gave them a call and it turned out the person who was dealing with us was absent. They passed it to a junior colleague but as they were expecting her to return soon it wasn't 'progressed' much.  However, as is our recurring bad luck with all bank related matters in this project, this continued for a week or more and eventually someone else did look at it but due to the absence of the original Loan Clark another telephone interview had to arranged, and again it was another couple of days.  Fast forward a couple of weeks.

This proceeded much like the previous interview and we were told that the paperwork would now be passed to the underwriters.  But in a classic Kafka-esque manner, the underwriter has refused to accept what his own loan managers have suggested and has come back with a figure lower than what we originally asked for!  He has reasoned that we can't afford the larger amount but they won't back up that decision with any figures (because they can't?).  The only info they will give us is that lending conditions have changed between them offering the extended loan amount and the underwriters approving it. The monthly mortgage payment even with the additional higher loan amount, if it ever comes (i'm starting to believe that we are on our own now) will still be less that the monthly rental payments that we made for 3 years in Richmond, when we had a lower household income!  There is no objective evidence for this conclusion but they refuse to have any dialogue and will not share their figures with us.

The result for us was that we have invoices coming in for work completed and at this stage of the build we are paying for things in advance, such as kitchen, flooring, bathroom items.  So this is a terrible time for cash flow issues to present themselves.  A few weeks ago I had £35K worth of invoices outstanding and only £13K left in the bank.  Who gets paid and who doesn't?  This is people's livelihoods and everyone needs and is entitled to be paid promptly! I barely slept for nights on end.  Luckily we were helped out with a loan from a family member.  And then a few weeks later we had to borrow from another family member.  Again, we are so grateful. We have now borrowed £55K (!) from family in order to keep cash flowing and work continuing.  It's pretty distressing stuff. 

The building society then informed us that the reason they are lowering the amount of money they are willing to lend to us is that they won't repay family loans.  They agree we are on budget and not letting the project get out of control we have been aware of this future need for cash for a long time and they gave it outline consent.  The only reason we have borrowed from family is not due to overspend but because they have been terrible at supporting cashflow! It's outrageous. 

I'm so frustrated and angry with the Building Society.  We are following their procedures and it is them who are letting us down. We tried to get them to do this back in November last year, they wouldn't.  They will only process loan increases once you have reached the limit of your current loan.  So we needed them to process this as quickly as possible and there was just no sense of urgency.  They seem to be oblivious of just how slow they are and the impact their delay of nearly 3 months, has had on us and our contractors.  They are behind desks in an office but I don't think I'm being unreasonable to think that they should have a better understanding of the self-build process and the financial demands and timetables (or any building process to be frank)?  There is no one who I can even appeal or complain to.  

Maybe it's not bad luck.  Maybe this is the same experience that everyone has relating to self-build mortgages?  I have to say, that this really is the one area that government could have an impact on to facilitate self-build.  Someone needs to sort out a straightforward pathway to lending and sensible and helpful specialists and managers to facilitate cash-flow. The whole process has been opaque, no one has helped us understand the criteria, the stages and the issues.  We've had to figure it all out ourselves whilst constantly having to deal with the ridiculous nature of the banking system which seems to be completely divorced from reality. I've always heard people complain about the bureaucracy of the civil service, but they are nothing compared to our experience of a building society!  They have the gall to tell us in almost every conversation that they are doing their best to help us whilst continuing to not do anything.  It seems to  be the worst type of box ticking and paper-chasing exercise, the computer says no.

Our fixed term mortgage term comes to an end in January and we will be re-mortgaging as soon as we possibly can. Not least because we need to repay our debts to family. They have mentioned that once the build is complete then they are happy to reconsider the loan amounts, but I'm afraid it will all be too late by then!