Buying a house without a mortgage: what you should know - MCS

Ask us for advice

How does conveyancing work?

FREE no obligation Quote
1st April 2022

Buying a house without a mortgage: what you should know

For many aspirational homeowners, the sum of money required to buy a property outright isn’t always as simple to retrieve as they might like. Depending on how much you earn and your typical outgoings, saving hundreds of thousands of pounds is no easy task. The vast majority of buyers borrow mortgages to be able to purchase properties that are valued higher than the amount of expendable cash they have available.

There are various reasons why someone may want to purchase a property without a mortgage, and there are several methods of doing so. Depending on your financial status, borrowing eligibility or exiting property portfolio, you may have the means to purchase without a mortgage. Discover more about the nuances of buying properties without a mortgage in this article from My Conveyancing Specialist.

 

Can you buy a house without a mortgage?

Of course, there are no legal or physical restrictions to purchasing a property without a mortgage. The loans enable buyers to invest in a property without requiring up-front money.

Traditionally, if a buyer were to purchase a property without the assistance of a mortgage, it’ll be because they have the money saved, invested or perhaps recently inherited. It is often reasonably simple for the older generation to purchase property without a mortgage if they have owned their existing property for a fair amount of time.

With the average repayment term of a mortgage around 25 years, anyone who has owned their property for that time will have complete ownership of the equity within their property. Selling their home would release this equity, providing the funds to purchase another property. By downsizing, as many older individuals and couples do, you can afford cheaper properties without any need for a mortgage, with cash to spare.

Alternative methods

Alternatively, property investment companies are popping up across the country that will help you invest in your home. Companies such as Wayhome and Unmortgage offer buyers the opportunity to own a portion of their home whilst paying discounted rent on the investment company’s remaining proportion. Within these arrangements, a deposit is still required, and you can eventually purchase more equity to increase your share of the property.

These schemes bear similarities with the government’s shared ownership scheme. However, there are differences due to the use of private investors to purchase the remaining portion of your property. Additionally, a deposit and mortgage are often used within the government scheme. However, you can buy your percentage outright through private plans.

 

What is a cash buyer?

Whilst the name might be misleading, a cash buyer isn’t somebody who hands over a briefcase full of physical cash to purchase a property. Instead, the term describes buyers with the total purchase price available without requiring additional funding, such as a mortgage.

Another commonly unknown factor surrounding cash buyers is that their finances must be available instantly to be technically considered a ‘cash buyer’. The property’s purchase value needs to be available within your bank account. Many homeowners who intend to sell their property and use the money invested in purchasing a new home aren’t considered cash buyers.

While the housing market has boomed on the tail end of the pandemic, many outright homeowners have stayed put rather than re-invested. It has been reported that in 2020, only 24% of homes were purchased by cash buyers. Lower than the previous year, which saw 26% of buyers purchasing mortgage-free.

 

Benefits of purchasing a house without a mortgage 

  • A simpler exchange process

Purchasing a property with a mortgage requires several steps to complete the transaction securely. Without this hassle, the property purchase becomes infinitely more accessible and tends to end more quickly.

Instead of completing mortgage approvals and applications, the cash is available for transfer as soon as required. There tend to be far fewer concerns that your exchange may fall through due to financial difficulties. This leads to a stress-free experience and allows you to focus on your future in the new property.

  • More desirable to sellers

Due to the simplicity of the exchange process, property sellers are far more likely to favour cash buyers. Several reasons create desirability for cash buyers over buyers with mortgages.

This may be due to the lack of a chain that is accompanied by cash buyers, the fast availability of funds that progresses the purchase procedure or even the security of the purchase completing without failure of mortgage applications.

  • Lower costs

As a cash buyer, you will quickly notice the expenses you will save by purchasing a property without a mortgage. To start, sellers are far more likely to accept lower offers due to the desirability of selling to a cash buyer.

Additionally, the interest included alongside mortgages costs thousands of pounds, which is saved by making a cash purchase. Mortgage rates currently lay around 2-3% of the property value.

 

Something to consider

Cash buyers frequently enjoy faster property completion, simple exchanges and lower purchase prices. However, there is one other consideration to make. After buying a property without a mortgage, it is essential to be aware of the status of your cash fluidity.

If you have invested all of your savings into a property, you might face financial difficulties regarding upfront costs such as renovations or emergency payments. Many people enjoy the gradual mortgage settlement because of the cash fluidity.

 

How to buy a house without a mortgage

Of course, purchasing a property without a mortgage is entirely possible if you have the cash available. The property exchange is completed in the same way, without the requirements of various checks and surveys typically completed for the mortgage lenders’ purposes.

Despite the potential for a slightly shorter conveyancing process, it is recommended that you should still complete the transaction as if you are purchasing with a mortgage. Whilst you won’t need to conduct checks for lenders’ purposes, it can still be worth completing them for your security.

An RICS surveyor typically completes a mortgage valuation survey to assess the quality and value of the property. This ensures the mortgage lenders are lending the correct amount of money for the property’s value. This ensures that if they need to repossess it, it can be sold for a similar amount.

As a cash buyer, it is wise to retrieve this same information through an accredited survey to protect your investment should you come to sell the property. Without this knowledge, you could find yourself paying more than the local property value, decreasing the return on your investment.

 

Summary

You can easily purchase a house without a mortgage as a cash buyer. This offers a host of benefits and a far more straightforward conveyancing process due to the complexity associated with mortgages. Cash buyers are far more desirable to sellers, and you may even be able to shave hundreds of pounds off the property’s purchase price.

As a word of warning, it is worth taking the safe route through your purchase rather than rushing through for quick completion. Like any purchase, you want to ensure you pay a fair amount for something that will retain its value. Completing a survey and the typical conveyancing checks are one way to guarantee you will receive a fair deal on your property purchased without a mortgage.