Is it better to buy a house with cash?
For many people, being mortgage free is the ultimate financial dream. Having no mortgage can give you a great sense of security as well as a lot more monthly disposable income, but does that mean it’s better to buy a house with cash if you can?
The benefits of buying a house in cash
There are plenty of perks to buying a house in cash, primarily that it’s easier and cheaper than getting a mortgage. Although interest rates are currently relatively low, interest stacks up over the term of a mortgage and there’s no denying that it’s a big expense long term. Avoiding interest charges, along with other costs such as mortgage arrangement or valuation fees and additional admin costs can definitely feel like an attractive option.
Buying in cash means no waiting for mortgage approval and it can often make you a more attractive option to sellers, meaning you may be able to negotiate a better price on your property too.
There may be personal circumstances where cash enables you to buy when you might not otherwise be able to, for example if you have no regular income, don’t meet affordability criteria or have had bad credit issues recently. There may also be problems with the property that make it unmortgageable, such as it being uninhabitable in its current state. Buying in cash can afford you more flexibility in these circumstances.
So is it always better to buy a house in cash?
Not necessarily. Although there are benefits, not least the emotional security of owning your home outright, it may not always be the best option, especially if it doesn’t leave you much in the way of cash reserves.
Owning a home is unpredictable and it’s always a good idea to have some cash savings to be able to cover unexpected bills or repairs. If buying your house in cash leaves you low on liquidity then you could be making yourself vulnerable to future emergencies.
Could the cash be used more smartly?
One good argument for choosing a mortgage over buying a house in cash outright is that your savings could actually be working harder for you elsewhere. Mortgage interest rates are low compared to the return you could see from investing the cash instead into a pension or stocks and shares, and the money you can potentially earn could well exceed the interest payments you’ll be making, leaving you better off overall.
Splitting your cash as a deposit over two or more properties – using one for buy-to-let purposes – is another smarter way to use the money.
Rather than spending £300,000 on one house for example, could you put £150,000 deposits down on two homes, borrow the remainder, make rental income on one and benefit from the capital growth in both? Stretching this further, you could consider 25% deposits on four properties, and see your initial cash investment go a lot further than one mortgage free home.
It’s definitely not simply the case that buying a house in cash is always best, so get some expert advice and start making that cash work for you.