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How to buy a house with cash

If you can afford it, it might seem sensible to minimise your debt by not taking out a mortgage. But is buying a house with cash the best option for you?

How to buy a house with cash

Buying a house with cash means buying a house without the help of a mortgage or loan. The definition of a cash buyer is often misunderstood – they must have the cash available at the time of putting in an offer. As a result, to be a cash buyer you must be able to afford the new property without relying on the money from selling your old one.

What does ‘cash buyers only’ mean?

If an estate agent advertises a house as ‘cash buyers only’, it means that the buyer does not want anyone to put in an offer if they would require a mortgage in order to complete the sale.

There are a number of reasons this might be. It might be that they just want the sale to be completed quickly – they might have found their dream home and are afraid of it falling through, or maybe they’re looking to quickly release equity tied up in the property.

However, it may be that, for whatever reason, the house is unmortgageable, making it only available for cash buyers. The house could be unmortgageable for a number of reasons – for example it may have structural damage, or it might be built in a high flood risk area. Be sure to ask the seller why they’re asking for cash only. It’s also a good idea to get a survey to ensure there are no surprises further down the road. If the survey shows up problems with the house you might decide to go ahead with the purchase anyway – it might be that the issues can be fixed for not too much money – but at least you’re aware from the start.

What are the benefits of buying a house with cash?

Buying a house with cash can benefit both parties involved in a property transaction. The advantages include:
  • The sale is less likely to fall through. The process of applying for a mortgage provides plenty of opportunity for issues to arise, from being rejected by the lender to simply taking too long. Cutting the bank out of the equation therefore means the sale is more likely to go ahead.
  • It is less stressful. The buyer doesn’t need to worry about the mortgage process, and seller knows the buyer won’t have any problems raising the funds.
  • You’re appealing to sellers. As a cash buyer, you’re more appealing to sellers than those buying with the help of a mortgage. This not only makes you more likely to get the property you want, but also puts you in a great negotiating position – as selling a property to cash buyers is often faster, safer and simpler than selling to someone requiring a mortgage, you’re much more likely to get an offer accepted that’s lower than the asking price.
  • There is no downward chain. As a cash buyer can afford to buy their new home regardless of whether they’ve sold their old one by then, there’s no risk of that sale being interrupted by other sales collapsing. According to research by the HomeOwners Alliance, 1 in 5 collapsed sales were the result of a sale falling through at another point in the chain. As a result being at least partially chain-free means the transaction is much more stable, both for the buyer and the seller. Read more about housing chains.
  • The process can be a lot faster. If a person has to secure a loan or mortgage from the bank, they typically hear back about a month after they’ve submitted their application. However a cash buyer already has all the funds they need, so this waiting period can be eliminated. Also, a mortgage lender often requires surveys and legal checks to be carried out on the property. While the buyer will probably choose to have a survey anyway, if the house is a new build and they’re confident there are no issues then they could decide not to, which would speed up the process further.
  • It saves you money. As you won’t be paying interest on a large loan, in the long term you’ll pay less money for the property. You’re also eliminating the fees associated with the mortgage process.
  • There is more security in the long run. As a cash buyer, you own the property from the start. If you fall into financial difficulty further down the line you won’t need to worry about getting behind on mortgage repayments and, no matter how bad things get, you’ll always have a roof over your head until you decide to sell it.

What are the disadvantages of buying a house with cash?

As with most things, being a cash buyer has its cons.
  • Loss of liquidity. It’s a huge amount of money to be spending. Make sure you’ve properly budgeted so you’re sure you can afford it alongside your living costs.
  • Lack of flexibility. Even if you have the cash, it might not be beneficial to have so much of your wealth tied into one purchase as it could limit your options further down the road. It might also make it trickier when you do go on to sell, as you’ll need to make sure you’ve still got enough money to pay for the deposit on your next place.
  • Lack of checks. Whilst the mortgage lender’s surveys and checks may seem time consuming and expensive, going without them can put you in a risky position.

How to make buying with cash safer

By getting to know the property as well as a mortgage lender would, you can eliminate some of the risks associated with buying with cash.

Carry out the checks that a mortgage lender would

Mortgage lenders are parting with a huge amount of money when they lend someone the money for a house, and so it makes sense that they want to be absolutely sure the investment is a safe one. As a cash buyer, you’ll be putting just as much money into the transaction, so do the same so you can be sure as well.
  • Be aware of property searches. There are a number of searches that a mortgage lender carries out on a property, including a Local Authority Search (checking for plans, restrictions or highway information that might affect the property), Regulated Drainage and Water Search (checking the property is connected to the main water supply and assessing the proximity of sewers) and the Land Registry Title Plan (to show the boundaries of the land). Your conveyancing solicitor will probably check these, but be sure to check with them and ensure you understand the results.
  • Check when the property was last sold. If the current owner has lived in it less than six months, it’s worth finding out why they’re off again so quickly.
  • Check if the property is concrete built. Concrete houses, including those with steel frames, are considered non-standard. Many lenders will not grant mortgages on properties made from Precast Reinforced Concrete (PRC), due to a number of potential defects. If the property you’re buying is made of concrete it should be professionally surveyed to determine the type and condition of the concrete.  Read about how to find out what kind of concrete a house is built with.
  • If it’s a new build, check for new build warranties. As with any insurance company, its worth reading the small print carefully to check what is and isn’t covered. Natural wear and tear, weather damage and problems with any modifications that past owners have made will often not be covered by the warranty. Other issues like damp and condensation might only be covered if they meet certain criteria.
  • Check there is no formal management company in place. This could incur hidden fees.

Get a survey

If you were getting a mortgage you’d need a mortgage valuation survey. As a cash buyer you won’t need this, but, as with any sale, it is still highly recommended that you get a survey done on the property.

Opting not to get a survey done might seem like a money saver but on the contrary, it could actually end up being very expensive. Fixing structural issues like subsidence can cost thousands, but flagging them before the exchange of contracts can mean you can reduce the purchase price of the property to make up for it. You could also decide not to go ahead with the sale.

Remember that, mortgage or no mortgage, if you buy a property without getting it properly checked then you alone are responsible for any issues found after the transaction.

Being a cash buyer presents a wealth of opportunities and can help smoothen the process for both the buyer and the seller. But just take care to make sure you're not missing out on anything else.

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