Collecting enough cash together to buy a property is no mean feat. But if you do have that kind of money stashed away, is buying a house with cash the right decision?
In this article, we take a look at how being a cash buyer affects the home buying process in the UK and explore the pros and cons of using cash instead of getting a mortgage.
What does it actually mean to be a “cash buyer”?
You’re a cash buyer if you’ve got all the money you need to buy a property ready to go when you make your offer. We don’t mean in a suitcase under your bed – in fact, paying for a house with physical cash usually isn’t allowed because of UK money laundering rules. Instead, you’ll be using the money sitting in your bank account.
If you’re aiming to sell your current home and use the proceeds to buy another property, you’re not technically a cash buyer. That’s because the money is still tied up in your home – it’s not available for you to use right now.
Buying a house with cash: the process
The process of buying a house with cash actually looks very similar to the process of buying a home with a mortgage. The main difference is that you don’t need to prepare and submit a mortgage application, and then wait for it to be approved. Otherwise, you’ll be following the same steps:
- Find a property
- Make an offer and (fingers crossed) have it accepted
- Hire a solicitor or conveyancer to take care of your legal work
- Organise a property survey
- Wait for your solicitor to carry out property searches and other checks
- Exchange contracts and pay your deposit
- Send over the rest of the money for the sale, pay any remaining legal fees, and complete the purchase
To search or not to search?
Technically, when you’re buying a house with cash, you don’t need to get your solicitor to carry out the usual searches on the property. But it’s still strongly recommended you do.
Searches are where your solicitor makes inquiries with local authorities to uncover potential issues with the property or the local area. For example: Is the property connected to the sewerage network? Is it located on a flood plain? Is the land it’s on contaminated?
If you’re relying on a mortgage lender to help you buy your home, there’s no getting out of these searches. The lender will want to be sure that their money isn’t at risk.
But, as a cash buyer, it’s still a good idea to get your solicitor to conduct searches. They cost a few hundred pounds (paid through your solicitor), but they’re worth it to make sure you’re going into the sale with all the information you need to know about the property.
How long does the process of buying a house with cash take?
A cash property sale can potentially complete in a matter of weeks. Skipping the mortgage application step may save you the four to six weeks it typically takes for an application to be approved.
That said, other factors can impact the buying process and draw it out. For example, searches can take longer than expected, or your seller may struggle to move out in time.
Buying a house with cash: pros and cons
So, should you raid the piggy bank to buy your new home? Let’s look at the pros and cons of buying a house with cash:
- You’re an attractive buyer: with cash on the table, sellers are likely to see you as a safe bet, making you stand out from other potential buyers. You’re also in a strong position to negotiate, meaning you might be able to get an offer accepted even if it’s below the asking price.
- Greater chance of a successful sale: mortgage issues are one of the most common reasons for a property sale to fall through. As a cash buyer, you don’t need to worry about your mortgage application being declined or the possibility that you’ll be gazumped while you’re waiting for approval.
- Move into your new home sooner: without the mortgage application step, the home buying process can take less time (though there are no guarantees, of course).
- No downward chain: complicated chains are notorious for disrupting property sales. As a cash buyer, you don’t need to rely on selling your home before you can move. So you can simplify the chain, if there is one, making it more likely that your sale will progress smoothly.
- More security: once you’ve bought your home, it’s yours outright – no need to worry about affording monthly mortgage payments in the future. If you were to lose your job or experience any other significant change to your financial situation, you’d still have the security of a roof over your head.
- Save money on interest and fees: with a mortgage, you not only have to pay back a chunk of the amount you borrowed each month, but you also pay interest on your loan. So, if you pay with cash, you save money on those interest payments, and on other mortgage-related fees, too.
- Risk of overstretching your finances: with the average UK property selling for nearly £270,000 (as of September 2021), getting enough cash together to buy a home isn’t easy. It’s worth asking yourself if you can spend that amount of money and still have plenty left over to cover other expenses. Will you have enough of your nest egg left if your car breaks down or the house needs a new roof, for example?
- Ties up your money in one investment: even when a property is going to be your home, it’s also an investment. You might want to consult an independent financial advisor about whether buying a house with cash will make your money work for you.
If house prices are rising, the answer might be yes. But if the market is slower, your best bet might be to get a mortgage and invest some of your money another way.
- Not the only option for buy-to-let: You might think that buying a buy-to-let property with cash is a no-brainer – that way, none of the rental income goes towards paying a mortgage. But, instead of buying one higher-price property with cash, it might make more financial sense to buy two cheaper properties using a buy-to-let mortgage and a substantial deposit.
The combined rental income (plus any increase in value of the properties) could exceed the returns you would have received on one property, even one bought with cash. Again, it’s important to get independent financial advice when you’re considering this kind of step.
What does it mean when a property is listed as “cash buyers only”?
If a seller has listed their property as “cash buyers only”, you should definitely ask the estate agent a few questions. The seller might be looking for a cash buyer because they know it would be tricky (or even impossible) to get a mortgage on the property. Maybe there are serious structural problems with the building, or perhaps the site is prone to flooding.
On the other hand, the seller might just be looking for the quick and easy sale that a cash buyer can often provide. They may want to move soon, or perhaps they urgently need the money they can raise by selling up.
Either way, if you’re considering buying a “cash buyers only” property, it’s more important than ever to get a structural survey carried out there. If you discover any issues, you might still decide to go ahead with the sale – but at least you’ll know what you’re getting into.
Can you buy a house with cash and still get a mortgage later?
Yep, you can buy a house with cash and then remortgage it later. You might find that potential lenders want you to have lived in your home for at least six months before they’ll give you a mortgage, though.
When you apply, your lender may also ask questions about why you’re looking to remortgage when you currently own the property outright. And, as with any mortgage application, they’ll carry out affordability checks to make sure you’ll be able to keep up with your mortgage repayments in the future.
So, yes, if you decide to buy a house with cash, you can still change your mind and get a mortgage later on. You always have options. See our quick guide to getting an unencumbered mortgage for more detail.