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Buying a House with Cash in the UK
Purchasing a property with cash (or ‘cash buying’) is buying a house upfront, without the need of using a mortgage or loan. This way of investing pays less and can achieve higher returns in the long term, all due to not paying interest on a loan.
As the house price growth rate falters and even drops in some areas of the UK, many are choosing to buy a house with cash. Without a mortgage application, there is less room for things to go wrong. There is no need to pass affordability checks as cash buyers are buying a house outright, and buyers will not be caught in downward chains, waiting for applications or funds to be released.
Pros and Cons of Cash Buying
What is more, cash buyers can be more attractive to sellers. Due to less risk involved, seeing as mortgage applications can force buyers to eventually drop out, cash buyers are a safe bet for sellers as they offer a greater chance of a successful and quicker sale. Due to this, cash buyers are in a strong position to negotiate and place an offer below the asking price. With this alongside paying no mortgage or interest costs or as many additional fees, those buying a house with cash save money.
However, there are both pros and cons of buying a house outright. While having enough money to pay upfront for a property, cash buyers do face a risk of overstretching finances. With the current property market, buyers must be certain that their money is not tied into one investment, and that there is enough to cover any other expenses that could occur.
One thing is for certain, though. Cashing-buying a property offers security. Once you buy a house with cash, the property is yours. Even if financial circumstances change, buyers need not worry about future mortgage repayments.
How to Buy a House with Cash
The process of buying a house with cash in the UK is very similar to buying one with a mortgage. However, the entire step of a mortgage application is taken away. This saves an average of the 4 to 6 weeks that takes for a mortgage approval.
In a competitive market, cash buyers are more attractive to sellers due to the chance of a quicker sale. For this reason, cash buyers can negotiate prices and can purchase a property for an average of 10-15% below the asking value.
Solicitors or conveyancers are key to sorting all the legal parts of buying a property. From helping with contracts to additional fees like stamp duty tax, solicitors are key in sorting all the legal parts that come with buying a property – cash or mortgage.
A solicitor also carries out the necessary checks and property searches to ensure the house you are buying is up to standard. While not necessary, this and property surveys analyse potential risks, both physical and financial, in the property. They are like a MOT but for your home. Especially if a property is listed as ‘cash buy only’, it is best to be cautious and have professional aid in case something is wrong with the house.
Cash buying a property purchases it outright. Once an offer is placed and then accepted, the home is yours to live in or rent out. As for the entire process, from making an offer and hiring a solicitor to exchanging contracts and making the payment, it can take an average of 30 days. Without the need for a mortgage application, 4 to 6 weeks are saved in the process.
When you buy a house with cash, it is entirely possible to re-mortgage it. This is encouraging for buyers who want flexibility in their purchase, knowing that they can change their minds even after buying. Most buyers do this if they plan to renovate and then use the equity to fund the next project. However, most lenders will only want homeowners to re-mortgage after an occupancy of at least 6 months. This of course varies between lenders.
Of course, it all depends on your situation. Cash buying a house as a buy-to-let (BTL) property means rental income is not used for mortgage repayments. Alongside higher returns, cash buying a property also saves money overall by avoiding interest rates and buying the property lower than the asking price.
However, even if an investor has the cash upfront to purchase a higher-priced property, it may be more beneficial for them to buy two smaller homes with a BTL mortgage and a larger deposit. This way, all their liquidity is not focused on one asset. An investor is not at risk of overstretching their finances.
As always, seek guidance when investing so much of your own money. Whether cash buying a property or securing one through a mortgage, it is recommended to use an agency over tackling it alone.
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