Can You Buy a House without a Mortgage?

If you are in the fortunate position to be able to buy a house without using a mortgage you may be wondering what your options are. Is it still worth looking at mortgage products and are there alternatives to buying with cash and tying up your wealth in a property?

The good news is there are plenty of options available to those looking to buy a house without a mortgage and if you are not cash-rich there are bespoke mortgage products available to you as well.

Let’s explore if you can buy a house without a mortgage in this comprehensive guide.

Ways to Buy a House with no Mortgage

There are a few ways you can buy a house in the UK without a traditional mortgage product. Some property buying methods carry a lot of risk such as crowdfunded purchases, whereas others reduce risk compared to a mortgage.

Pay with Cash

The predominant method to buy a house without a mortgage is to pay with cash. Buying with cash is more common than you might think and there are added benefits when compared to a mortgage.

The main benefit is cash buyers tend to get better value for money as sellers who target cash buyers want to sell quickly and may offer reduced prices. Cash buyers will normally be able to purchase a property in the shortest time as there are no delays from mortgage applications and no existing property chain.

Estate agents are familiar with cash buyers and have protocols in place to streamline the process including requesting proof of funds and completing Anti-Money Laundering checks.

Private Mortgage Loan

A private mortgage is where an individual or group of people offer lending products to buy houses. Typically, these will be provided by family members although there has been an increase in private companies offering flexible mortgage lending in recent years.

Private mortgage loans are a mixed bag compared to traditional mortgages. The benefit of a private mortgage is that you will not have the same criteria to pass as a traditional mortgage and the rates and terms can be favourable.

There are numerous downsides to a private mortgage:

• They are unregulated and consumers have no protection from fraud
• Some companies are predatory with usurious interest rates
• If you fail to keep up with payments, you do not have the same repossession protections as a traditional mortgage product.

Owner Financing

A purchase-money mortgage, also known as owner financing, is a rare product in the UK. Essentially, the property owner acts as the bank or lender in the transaction, and you make payments to them.

The mortgage terms offered by owner financing tend to be expensive, so these products tend to attract people who are unable to get a traditional mortgage due to failing affordability or credit check requirements.

Rent to Own

Rent to own is similar to owner financing as you will be making monthly payments to the individual or company that owns the property. The difference is that a portion of the money paid each month is a rental payment.

In extremely rare cases the entire monthly payment will go toward the equity in the property, However, there will still be other rental fees applicable such as service charges.

Rent-to-own has grown in popularity as it can provide an affordable way to buy property for those with low incomes. If you wish to sell the property before the product ends there will often be restrictions and buy-back clauses that offer poor value for money.

When factoring in the difficulties you may encounter if you want to sell early, rent-to-own is only suitable for those looking to reside in the property for the long term.

Can You Make an Offer on a Property with Cash?

Yes, making an offer for a property with cash is perfectly acceptable providing you can show the funds in an approved account such as a savings account.

You can also use investment accounts as proof of funds. However, estate agents may have further questions to check that the amount in the account reflects the amount you can draw out. For example, most investment accounts have fees or penalties for withdrawing funds that can reduce the total amount available to use for your property purchase.

You should also remember if you are using investment income to buy a house you will be taxed twice on the purchase, first for any gains you make and secondly for stamp duty on the house value.

You will also need to show the source of all cash funds to show it has not been acquired illegally. This is a requirement under Anti-Money Laundering legislation.

Is it Easier to Buy a House with Cash?

It can be much simpler to buy a house with cash but this is not always the case.

If you have difficulty tracking the source of your funds, you will find buying a property with cash to be a painful process.

Some sellers also prefer to avoid cash buyers, especially if they are anticipating getting into a chain (onwards purchase). Cash buyers notoriously want to complete sales quickly and often pull out of property purchases if chains develop.

As a result, you may find that the types of property available are limited to those looking to sell quickly. Finally, many cash sellers are selling to cash buyers because their property is not mortgageable. This adds a higher level of risk as the property may not be in a good condition and cash buyers should always seek full surveys to find out what they are getting into.

Do You Still Pay for Homeowners Insurance without a Mortgage?

It is not a legal requirement for a cash buyer to buy home insurance so you could opt out of this if you wanted to.

Home insurance is a low-cost insurance and protects against so many aspects of home ownership that it is a no-brainer to take it out. For example, flooding is increasingly common in the UK and without insurance, would you have the money to fix the water damage done to your property?

Speak to a Mortgage Expert

There are always options available outside of a traditional mortgage product for buying a property. You may have even found an alternative product that seems to suit your needs.

It is always worth discussing your options with a mortgage broker as they are financially qualified and able to read through financial contracts and highlight any shortfalls or aspects you may have overlooked.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers offers fee-free mortgage and home-buying advice.

Contact Boon Brokers to discuss your property purchase today.