#Buying a house is not often straightforward. With property chains, price negotiations, solicitors fees and many other factors to think about, the process is widely considered one of the most stressful things you will ever have to do.
If you are keen to buy a house in the near future, you will need to create a clear plan for how you can afford it. The vast majority of people purchase a property by getting a mortgage – but in some rare instances, acquiring one using cash may be possible.
In the blog below, we have explained the advantages and disadvantages of both methods of buying a house. We have also answered several other questions related to this topic – so keep reading to find out all the answers you need.
How can some people afford to buy a house with cash?
You may be able to buy a house for cash (in other words, 100% of the fee up-front) if you are selling another property to finance it. For people in later life, selling a house and downsizing may enable you to pay off the remainder of your mortgage, and then buy your new property mortgage free.
Sometimes, younger people may be able to buy a house with cash if they have made vast sums through their work, or have been gifted funds by a relative or close friend. In this instance, proof of funding will usually be required by the lender, and they will want details about where the money has come from.
Some people take out a loan if they do not quite have enough money to buy 100% of a house up-front. In this instance, a small loan may give them the extra amount needed to buy it outright – although, this approach is sometimes more common with businesses.
Advantages and drawbacks of buying a house with cash
When you purchase a house with cash, it means that you do not require a mortgage, and therefore do not have to pay high levels of interest. You will be able to avoid ongoing mortgage repayments every month, which provides you with more spending money. Likewise, if you decide to rent out a house which has already been entirely bought with cash, it means that 100% of the rental income goes into your pocket.
A second advantage of purchasing with cash is that it can speed up the process of completing the deal, as there are less complications involved. For example, you will not need to wait for the bank to approve your mortgage, because you don’t need one. Sellers may also view you as more reliable for this reason, too, and could therefore choose you over other buyers who are dependent on a mortgage.
On the other hand, a drawback of buying a house with cash is that it could result in you ‘overstretching’ your finances. While you may be able to scrape together enough money to purchase the property outright, you will still need to pay utility bills, living costs, and more once you move in. If you have not saved enough money ‘in reserve’ after buying with cash, then you may struggle to afford these important things.
Some financial advisors will also suggest that spending all your money on one single ‘investment’ is not necessarily always the best move. For example, getting a mortgage may enable you to invest in other assets, too, which could be financially beneficial for you in the long run.
Advantages and drawbacks of getting a mortgage
Getting a mortgage makes owning a property possible for people who would otherwise be unable to afford it. For example, some people with high salaries still find it difficult to save up enough for a sizeable deposit – but in this case, getting a mortgage will open the door for them to get onto the property ladder.
If you secure a mortgage when buying a house, then it may also enable you to keep some more money separately, in case you need it in an emergency. For example, car breakdowns, an unexpected bereavement, or any other unforeseen financial difficulty may sometimes require you to have a large sum of money quickly – and if you keep some money in the bank for a ‘rainy day’ like this, it could be a lifesaver.
On the other hand, when you get a mortgage to buy your property, it means that you will be paying lots of interest on the deal. This means that not all – or, sometimes, even most – of your outgoings is dedicated to paying off your mortgage.
If you get a mortgage, you will also be at risk if you are unable to keep up with repayments. It is for this reason that you should not opt for a mortgage which you can only barely afford, because if interest rates increase or utility bills go up, you could face serious challenges and repossession of your home.
What are mortgage rates currently like in the UK?
As of November 2023, mortgage rates in the UK are particularly high, compared to recent years. You will find that mortgage rates are noticeably greater for first time buyers, compared to people who are already on the property ladder. Lenders are currently very sensitive to other factors, too, such as your credit rating, employment history, and the total amount that you want to borrow.
Can I get a mortgage without a deposit?
While it is extremely difficult to get a mortgage without a deposit, it is technically possible. Even in the current economic climate with typical mortgages being more expensive, you may be able to get one without a deposit if you have a high enough salary, and are not trying to purchase a house that is extremely costly.
There are other ways to make a deposit-free mortgage possible, such as finding a ‘guarantor’, or accepting a gifted deposit from someone else. If you want to learn more about getting a mortgage without a deposit, then click on the link to read our article about the subject.
What is a cash house buyer?
One of the main organisations on the property market that can purchase a house with cash is a cash house buyer. These are companies that buy a property for an up-front sum, often with the intention of ‘fixing it up’ and then selling for a profit further down the line. In many instances, someone selling a house will willingly reduce the amount that they accept, if it means that they can complete much more quickly to reliable cash house buyers.
Is it quicker to buy a house with cash?
It is often quicker to purchase a house with cash, compared to getting a mortgage. This is because the process of receiving a mortgage offer from a bank is time-consuming, since they need to check your credit score, employment history, proof of funding and more.
If all the funds to complete your purchase already exist, then there is subsequently less ‘waiting around’ and the deal can be completed quicker. This is a contributing factor for homeowners sometimes preferring to sell a house to a cash buyer, compared to someone who is still waiting for a mortgage offer to be confirmed.