Buying a house with cash; when should you do it and what to expect

How to buy a house with cash

Whilst buying a house with cash can make the property sale move faster, in general the process doesn’t vary too much from a mortgage-based property sale.

The biggest difference between a cash transaction is the elimination of the mortgage lender and/or broker. This means you will not apply for or arrange a mortgage.

To gain a better understanding of the house buying process take a look at our previous blog ‘how to buy a house.’ As a cash buyer you can skip step 1: deposits and step 2: mortgages.

Advantages of buying a house with cash

There are a few advantages that come with being a cash buyer, the most obvious being the elimination of interest gained on a mortgage and the burden of monthly repayments. Cash buyers can also benefit from the following:

Cash buyers only – Certain properties may be advertised as purchasable by ‘cash buyers only.’ This means the seller will not consider buyers that require a mortgage to complete the sale. In this instance, being a cash buyer, with funds readily available could work in your favour.
A smoother sale – Relying on a mortgage allows for issues and delays with the property sale, as the lender can reject or take a while to process your application. As a cash buyer you do not have a reliance on a lender, you’re also not reliant on another means of acquiring funds, e.g. from a previous property sale.
Seller appeal – Cash buyers are free of any complex chain, as they are not relying on a property sale before they are able to complete a new property purchase. Buyers without a complex chain prove very attractive to sellers seeking a quick sale.
Security – Cash buyers can rest safe in the knowledge that they have bought their home outright, removing the worry of repossession should they encounter financial difficulties in the future.

Disadvantages of buying a house with cash

We’ve looked at the benefits that come with being a cash buyer, now let’s explore the pitfalls.

Less liquid assets – Cash is the most liquid of all assets. Whilst property can be one of the most sensible investments, you will be exchanging a highly liquid asset (cash) for a less liquid, tangible asset. Before investing your cash in property you should assess the market and evaluate whether your money will work better for you if invested elsewhere. Using part of your cash as a large deposits to secure a mortgage could allow for lower interest rates, making borrowing more affordable and a part. You could then invest the remainder of your cash in a more lucrative opportunity.
Sales aren’t guaranteed – Whilst being a cash buyer removes the risk associated with lenders and complex chains, property sales can still fall through. Sellers are unpredictable and reserve the right to terminate the sale.
Rejected offers – As a cash buyer, you probably realise you’re in a strong position, benefiting from seller appeal. As a result of this many cash buyers often offer below asking price when purchasing a property, this can often backfire. Sellers that aren’t phased by a chain-free buyer, and are not in a rush to sell, might be willing to wait for a sale that meets or exceeds the asking price.
Financial stability – Buying a home with cash might not be a sensible decision if you have to stretch yourself financially in order to afford it. Leaving yourself short of funds could be a problem should the property require repairs or renovating.

Best practices when buying a house with cash

When purchasing a property with cash there a few best practices you should abide by to ensure your decision is a sensible one.

Remember, there are certain procedures a mortgage lender would undertake before considering the release of funds for a property and you should do the same, after all its your money at risk.

Property surveys

When buying a property with the help of a mortgage, the lender will often require a survey be conducted before releasing the funds, as a cash buyer, this survey is no longer a requirement.

Whilst eliminating the costs of a property survey might seem like a great way of conserving funds, this could be an expensive mistake. Property surveys can usually identify structural issues with a property, which are likely to cost you more in the long-run. These issues could be so large and expensive that they mean you decide not to continue with the property sale or reduce your offer based on the repair costs.

Relevant searches

A mortgage lender usually conducts several searches concerning the property and the surrounding area. These include land registry, drainage and water search and a local authority search.

Whilst your conveyancer will usually check all of these for you, make sure you liaise with them to understand the results as they can influence your decision.

These searches can help you to identify when the property was last sold, if this was less than a year ago it might be worth trying to understand why they’re keen to move on so quickly.

Should I buy a house with cash?

All in all, you should examine the state of your personal circumstances and the state of the property market when deciding whether or not to complete a property sale with cash. There are also certain best practices you should aim to follow to ensure you’re making a solid investment.

The knowledgeable team at Mr Homes can advise you on the state of the property market and direct you to sellers that would welcome a cash buyer – there’s lots of them!