Navigating the process of purchasing a house: Cash or mortgaged, learn the essentials!
Buying a house with cash has become a popular option for many homebuyers in the UK. This method of purchase offers several advantages, but it also comes with its own set of considerations.
In the UK, cash buyers mostly accumulate funds through personal savings, family gifts, proceeds from selling property, or equity release from existing properties. Proof of these funds is routinely requested by estate agents, solicitors, and sometimes lenders to ensure traceability and legitimacy.
One of the primary benefits of buying a house with cash is the speed and certainty it offers. Cash buyers immediately own the property outright, with no risk of a lender repossessing the home due to falling behind on mortgage payments. This speed is especially valuable in a competitive housing market.
Approximately 30-40% of UK homes are bought for cash each year, according to HM Land Registry. Some properties are even advertised as 'cash buyers only', often due to needing major renovation or underpinning.
Cash buyers may be able to negotiate a lower purchase price due to their financial position. They may also save time in the conveyancing process, estimated to be an average of 4 to 8 weeks.
However, properties marketed as 'cash buyers only' may have something wrong with them. These could include structural problems or the property could be built of 'non-standard construction'. Or, if it's a leasehold property, it might have only a short lease left.
Sellers may offer a discount for cash buyers, particularly if they are looking to finalise the sale quickly. Cash buyers should ensure they have enough funds left over for emergencies and regular outgoings.
Cash buyers are subject to Anti-Money Laundering regulations, with both estate agents and conveyancing solicitors legally required to verify not only that cash buyers have the funds to purchase a property but also the source of those funds to ensure the legitimacy of the money being used in the transaction.
Without a mortgage, buyers will not have to pay lender fees or mortgage interest. Ongoing costs for cash buyers will be lower, as these relate to the interest that would have to be paid on a mortgage. Sales are less likely to fall through for cash buyers, as they are especially valuable in a long chain of sales and purchases.
Cash buyers save on conveyancing charges, with an average savings of 6 per cent compared to buyers using a mortgage. When buying with cash, it's important to check with a conveyancer that correct permissions for any building works have been obtained by the seller, and to take out indemnity insurance if necessary.
Before deciding to go for a cash purchase, it's important to seek advice from a financial advisor to consider the wider financial implications. Dave Sayce, managing director and founder of home-moving services website Compare My Move, mentions that buying with cash is usually quicker and cheaper than using a mortgage, as it avoids affordability checks and valuation surveys required by mortgage lenders.
Jeremy Leaf, a North London estate agent and former RICS residential chairman, states that buying a house without a mortgage should be more straightforward than with one, due to fewer issues with mortgage finance and valuations. However, Mark Harris, chief executive of SPF Private Clients, suggests that not all buyers who claim to be cash buyers may actually be so, as some might take out a bridging loan to move quickly.
Cash buyers may demand more from sellers because they often expect a better price in exchange for being able to proceed quickly. Cash buyers, due to their financial position, often carry out more detailed inspections as well as valuations of their chosen property.
In conclusion, while buying a house with cash offers several benefits, it's important for buyers to carefully consider the financial implications and to ensure that they are making a well-informed decision.
- Homebuyers in the UK have been turning to cash purchases due to numerous advantages, yet it also presents a set of unique considerations.
- Funds for cash buyers mostly come from savings, selling property, family gifts, or equity release.
- One major benefit of cash purchases is the speed they offer, enabling immediate property ownership and less risk of repossession.
- About 30-40% of UK homes are bought with cash annually, according to HM Land Registry.
- Cash buyers may negotiate lower prices due to their financial standing and shave time off the conveyancing process.
- Properties labeled 'cash buyers only' may involve structural problems or non-standard construction; they could also have a short lease on a leasehold property.
- Sellers may offer discounts to cash buyers seeking a swift sale.
- Cash buyers must adhere to Anti-Money Laundering regulations, which requires the verification of fund sources by estate agents and solicitors.
- Without a mortgage, cash buyers avoid lender fees and mortgage interest, reducing ongoing costs significantly.
- When buying with cash, it's essential to ensure that correct building permissions have been obtained by the seller and to secure indemnity insurance if necessary.
- Before committing to a cash purchase, it's advisable to consult with financial advisors to fully understand the complete financial implications.
