Buying a House with Cash Vs Getting a Mortgage

If you are looking to buy a property and you have a substantial amount of money saved, you may be wondering whether to buy a house with cash or secure a mortgage instead. It can be difficult to decide if buying with cash is a good option, especially when there are mortgage products that could prove beneficial if you have savings.

This guide explains the differences between buying a house with cash and getting a mortgage. As you might imagine there are distinct advantages and disadvantages to both.

Let’s explore buying a house with cash vs getting a mortgage further.

Can You Buy a House without a Mortgage?

Yes, you can buy a house with cash. However, there are normally additional challenges you will encounter when buying property with existing savings.

Some sellers request cash buyers only in the hope of a quick sale and avoiding property chains. For cash buyers, these properties are normally marketed below market value to attract as much attention as possible.

You can also buy properties at auction. Auctioned properties tend to be cheaper to buy on average and you might be able to snap up a bargain. When banks repossess properties, they normally sell them at auction to recover the costs they have incurred in quick time frame.

What is a Cash Buyer?

A cash buyer is an individual (or couple) who have substantial savings and do not require a mortgage to buy a property.

To be considered a cash buyer by vendors (sellers) you will need to demonstrate that you have the funds readily available to buy a property. Normally this will be ascertained by providing statements of your current or savings accounts.

You should be aware, a cash buyer looking to buy a property with actual cash will be a red flag to estate agents and vendors. They are likely to be concerned about the source of the money, for money laundering checks, and why you have not used a bank account.

Pros and Cons of Using Cash to Buy a House

There are four main advantages to buying a property with cash:

• You avoid taking out a mortgage and paying interest.
• There are no ongoing monthly mortgage repayments, as you own the property outright.
• In some cases, you may be able to secure a property below market value, particularly during a recession when sellers may be more motivated.
• The purchase process can be quicker, as there is no mortgage application to arrange.

However, there are also disadvantages to buying a house with cash:

• You must clearly demonstrate the source of the funds.
• You are responsible for carrying out your own due diligence on the property’s condition.
• You need to have the full purchase amount readily available.

Source of the Cash

When purchasing a property with cash, anti-money laundering (AML) checks are automatically triggered. Estate agents and solicitors are required to verify that the funds have been obtained legitimately.

You will need to provide clear evidence of the source of your funds. AML regulations are strict, and in some cases, accounts or assets can be temporarily frozen until the source of funds has been verified.

Responsibility for Verifying the Condition of the Property

If you are buying a property outright, you are responsible for arranging your own valuation or survey before exchanging contracts.

It is strongly recommended to organise a valuation before exchange, as there may be structural issues or defects that are not immediately visible. In many cases, it is sensible to arrange a survey even before making an offer, as the findings could influence the amount you are willing to pay.

By contrast, if you purchase with a mortgage, the lender will require at least a basic valuation before issuing a formal offer. While this is primarily for the lender’s benefit, it does provide an additional layer of reassurance that the property meets minimum lending standards.

Cash Funds Need to Be Readily Available

Most people do not keep large sums of money in a current or savings account, as returns are often lower than those available through investments.

However, when buying with cash, the funds must be readily accessible in your account for AML checks and completion of the purchase. You generally cannot rely on investment portfolios or pension funds without first liquidating them.

Liquidating investments may reduce long-term returns or trigger tax implications, so this is an important consideration when deciding whether to purchase a property outright with cash.

Pros and Cons of Getting a Mortgage

If you already have enough cash to buy a property outright, taking a traditional mortgage can often appear disadvantageous. This is because the interest paid on borrowing is typically far greater than the interest you would earn by holding the same funds in a standard savings account.

However, there are specialist mortgage products designed for buyers who are cash-rich but still want flexibility. One of the most common examples is an offset mortgage.

What is an Offset Mortgage?

An offset mortgage allows you to place your savings in a linked, ring-fenced account with the lender. Instead of earning interest on those savings, the balance is offset against your mortgage loan when calculating interest.

For example, if you borrow £300,000 but hold £100,000 in the linked savings account, you would only be charged mortgage interest on £200,000.

Offset mortgages can be particularly attractive for cash-rich buyers because:

• They reduce the amount of interest you pay without locking your money away permanently.
• They allow you to retain access to your funds if needed for renovations or other purposes.
• They can offer tax efficiencies, as you are effectively saving mortgage interest rather than earning taxable savings interest.
• They provide flexibility, including the ability to withdraw funds from the linked account.

Offset mortgages are generally considered lower risk for lenders and can be a strategic option for buyers who want the benefits of cash ownership while maintaining liquidity and flexibility.

Can You Buy a House with Cash and Get a Mortgage Later?

Yes, you can apply for a remortgage on a property that you have bought outright. Lenders typically require you to have owned your property for at least 6 months before they can consider a remortgage application. However, there are a few lenders currently in the market that may accept an immediate application.

Speak to a Specialist

Being able to buy a property outright without a mortgage is desirable for many people in society but it is not without risk.

Mortgage lenders understand that buying a property with cash is not always ideal and have created flexible mortgage solutions that can make your purchase tax efficient and reduce your exposure to risk.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers provides fee free mortgage advice.

Contact Boon Brokers to discuss your next property purchase and find out which products are available to you today.