While the majority of buyers will purchase their properties with the assistance of a mortgage, some are able to do so without – making them cash buyers.
Well, not exactly…
The official meaning of ‘cash buyer’ is someone who has money in place ready to pay for a property at the point when they make an offer.
So, if you are selling your home and buying your next one with the proceeds, technically you aren’t a cash buyer until your property has sold – despite not needing a mortgage for the next one.
There are advantages to being a cash buyer, not least that you shed the burden of monthly mortgage payments.
But in some cases, it can actually pay to have a mortgage rather than buy with actual money.
Here, we’ll explain the process of buying a house with cash and look at the pros and cons of doing do…
Can you buy a house with cash?
You can buy a house with cash – and doing so means you don’t have the financial burden of monthly mortgage payments and you’ll own your home outright from the start.
Buying a house with cash: The process in the UK
Although buying a house with cash can be a much faster process than if you’re funding your purchase with a mortgage, it doesn’t actually change the process too much.
Essentially, the big segment you’re removing from the process when buying with cash is the involvement of a mortgage lender.
So, the process of buying a house with cash would be:
• Find a property and make an offer
• Offer accepted
• Instruct a solicitor
• Instruct a surveyor for survey / valuation
• Solicitor searches, queries and checks
• Exchange contracts and pay deposit
• Completion and final monies
Do I need searches when buying a house for cash?
Searches are mandatory when buying a house with a mortgage, as your lender needs to be certain their funds won’t be at risk.
If you’re buying a home with cash, searches aren’t mandatory – but it’s your money at risk, so it’s highly recommended to have them done.
Searches will cost a few hundred pounds payable through your solicitor, but will give you peace of mind that your cash investment in your home is safe.
Do I need a solicitor when buying a house for cash?
Even if you’re buying a property with cash, you’ll need a solicitor to:
• Liaise with your seller’s conveyancer
• Obtain the forms and documentation you need, including the property information form, fittings and contents form, leasehold information form (if needed), planning consents, electrical and gas certificates and copies of the title deeds
• Raise enquiries with the seller’s solicitor
• Undertake searches (if you choose to have them)
• Transfer all monies in relation to your purchase
How long does it take to buy a house if paying cash?
With the mortgage application and approval process removed, a cash sale can go through in as little as a few weeks.
However, exactly how long the process takes will depend on several factors, including how long the chain is and how long it takes to perform local authority searches.
How does buying a house with cash affect taxes?
Buying a house with cash shouldn’t affect your tax liability in any way.
The only tax you pay when buying property is stamp duty – and you would pay this anyway (if liable) regardless of whether you’re buying with cash or via a mortgage.
Can I buy a house with cash and then get a mortgage?
There’s no reason why you can’t buy a property with cash and then remortgage at a later date.
Your lender may insist that you’ve owned the property for at least six months before they’ll consider offering a remortgage on it, however.
Your reasons for wanting to remortgage a home you’ve previously owned outright will be of interest to your lender and they’ll also undertake affordability checks to be certain you’re able to repay the money they’re lending.
The benefits of buying a property with cash
As well as owning your property outright and having no mortgage burden, buying a property with cash also comes with other benefits, too…
1. Your purchase is less likely to fall through
Around 300,000 property sales fell through in 2020, according to data agency TwentyCi.
And the number one reason for those collapses was funding and mortgage issues.
Cash buyers don’t need a mortgage, so this drastically reduces the chances of your deal falling through and puts you in an incredibly strong position as a buyer.
2. There’s no complex chain
A cash buyer doesn’t have a property to sell, so they’re immediately in a great position to move quickly – something all buyers and sellers want but so rarely get.
Highly complicated chains also contribute to many deals falling through, usually due to one link in the chain pulling out, often for financial reasons.
Having a cash buyer in that chain, who has no mortgage requirements, can make the process far less complicated.
3. Cash buyers speed up the process
Not only do cash buyers offer a level of protection against property sales falling through, but they can also mean the process is completed very quickly.
Buyers needing a mortgage often have to wait at least four weeks before their application is approved, whereas cash buyers can move right away.
That means, as long as things like legal questions and searches are completed in good time, cash buyers can have the keys to their new property often within a few weeks.
4. Greater security for the buyer
Having a mortgage can be a huge burden for some buyers.
And the worry that can sometimes come with meeting repayments if your circumstances change can be extremely stressful.
Cash buyers have the security of knowing they own their home outright, so if their circumstances do change, they have options.
Things to consider when buying a house with cash
There are occasions when buying a house with cash might not be the best option.
Here are some key things to consider…
1. Buying an investment property in cash limits your options
If you’re looking to buy a property as an investment to rent out, you could be forgiven for thinking being a cash buyer would be a major advantage.
And it is, of course, when you factor in everything we’ve outlined above.
However, while buying a home to live in with cash makes perfect sense, spending the same money on a property to rent out isn’t quite as clear cut.
One of the best ways to maximise rental profit and capital growth as a landlord is to spread your investment over several properties.
So, if you have £500,000 in cash to spend, you might be better splitting that money over four properties and topping up each purchase with a mortgage.
That way, you also benefit from any capital growth on the mortgage lender’s money, as well as your own.
For instance, if a £500,000 property bought in cash grew by 10% in one year, that would mean £50,000 of equity.
But 10% growth on four properties bought with that same £500,000 but split into £125,000 deposits (25%) on each combined with mortgages, would see that combined equity increase to £200,000.
2. Your money is tied up in property
Even buyers purchasing a property with cash that they intend to live in should weigh up the pros and cons of doing so.
As with investment properties, you should ask yourself if property is the best place for your cash to be tied up.
If prices are on the rise rapidly, the return on your investment will be solid.
But in a market where growth is slow, that money might work harder for you if it’s invested in other areas.
With interest rates low, borrowing is still largely affordable, so you could be better off having a mortgage on your property and investing some of your cash elsewhere.
Always seek independent financial advice, and consider your own personal circumstances, before making any decision on where to invest your cash.
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