Property is either bought using a mortgage and a cash deposit, usually between 5% to 40%, or by a direct cash payment for 100% of the purchase price without any borrowing involved.
The vast majority of properties are purchased with mortgage financing.
If you are interested in whether you can buy a house with cash, the answer is yes – question answered!
However, if you are exploring whether you should, that is a rather different conversation.
This guide explores the pros and cons to be aware of to help you decide whether buying a house for cash is the right option for your next property purchase.
Is Buying a House With Cash a Good Idea?
It is certainly possible to purchase a house with cash.
There is no reason you cannot decide to pay funds directly to the vendor, buying a property outright, without a single mortgage application form or deposit.
If you have the funds sitting in a savings account, it might make a lot of sense and mean you will not be paying interest or need to jump through eligibility assessments.
The Advantages of Cash Property Purchases
Below we will run through the other factors that might make a house purchase with cash an attractive prospect:
Properties in high-demand areas can be tricky to secure, especially if you are in a bidding war. Cash buyers can be hugely appealing, meaning you will stand out as a priority buyer.
Easier Purchase Process
Paying cash for a house means you avoid any prospect of sitting in a property chain, waiting for one sale to complete so you can move forward.
You will bypass the lender checks that come with a mortgage, and there is a lot less scope for things to go wrong.
Most of the delays common in property sales relate to valuations, mortgage paperwork, and chains, all of which are eliminated with a cash transaction, so the only stalling point is probably legal searches on the property’s title.
Of course, if you have the capital to buy a home directly, you are not subject to lender interest.
Your home is not secured against debt, and you own that property outright and forever unless you choose to sell it.
Broader Purchase Prospects
Buying a home with cash means you have the flexibility to own a property that may have been impossible to mortgage.
Mortgage lender policies determine that properties needing substantial renovation are often considered unmortgageable. Any residence without a kitchen or bathroom, for example, is deemed uninhabitable and not a property you can secure a mortgage against.
Cash purchases carry no such limitations, so if you were considering investing in a renovation project to recondition and (hopefully!) sell for a profit, you wouldn’t need to comply with any lender restrictions.
Investors may purchase a property for cash and renovate the residence, either selling or remortgaging once the work is complete – when the property is in a habitable condition and eligible for a conventional mortgage.
This strategy is a viable option to release the equity upon refinancing to fund a further development project or replenish the savings used to support the original acquisition.
All told, buying a house with cash sounds like a pretty good deal – but some downsides are well worth considering!
The Pitfalls to Buying a Property for Cash
Sellers, in general, prefer a cash buyer (albeit a rather rare occurrence).
The difficulty is that they tend to lose out financially in return for the speed and convenience of avoiding the mortgage process.
Cash offers are, by and large, quite a bit lower than the asking price, particularly if the buyer is an investor or property developer.
Most cash acquisitions are of this nature since a developer is more likely to have expendable capital of a large enough value to pay in full for a property.
This type of transaction typically happens when they have sold their previous project or flipped an investment asset and have the proceeds available to snap up something new.
There is no right or wrong answer here, and a seller keen to move quickly or with a property that has been sitting on the market for ages might be more than happy to accept a slight drop in their sale price, but it is a point worth making.
Cons of Buying a House for Cash
From a purchaser perspective, the potential to negotiate a lower sale price is another incentive to consider a cash purchase, but that does not mean your sale is 100% guaranteed.
Property sales can fall through for all sorts of reasons:
- Another property comes onto the market in the local area for a lower price.
- The buyer changes their mind.
- Demand in the region drops, and investments become less appealing.
- The survey or valuation throws up structural problems.
- Legal searches uncover an issue with the legal property title.
- Planning permission is refused for a development project.
The only step you take out in paying cash is the mortgage agreement, so there is no escaping the possibility that something else will fall through.
We have listed below some of the other negative aspects of a cash purchase.
Missing Important Valuation Information
Every mortgage lender will want a formal survey and valuation report.
This step assesses what the property is worth on the open market and acts as a reference so the mortgage provider can see whether the loan value is appropriate.
Provided the sale price is reasonable and there is nothing fundamentally wrong with the home, the valuation is usually a technicality.
Buyers are routinely advised to instruct their own surveyor or valuation agent since the mortgage valuation is really about protecting the lender’s interests, making sure they would be able to recoup their loss if the loan ended up in a repossession scenario.
If you buy with cash, there is no lender there to work through a risk-averse checklist, and you need to be extremely careful that you have not skipped a vital step.
For example, some private sales are listed as ‘cash only’, which is a red flag that there could be something untoward going on under the surface. Sellers might list in this way because:
- They are dealing with a potential repossession and need to sell fast.
- There is another time pressure that means they cannot wait for mortgage approvals.
- The property is unmortgageable – i.e. there is something profoundly wrong, such as subsidence or a severe structural issue that means a mortgage lender would not touch it.
Avoiding home surveys is never a good idea and could mean you invest all of your cash savings into a property that is not worth anything close to the listing price.
Losing Liquidity by Over-Investing in Property
A final consideration for buyers is that, although buying a property with cash might seem an obvious choice, it may end up causing issues later on if your financial situation changes.
Tying up savings in bricks and mortar is inherently risky (if you do not have other backup funds) because:
- The property market could drop sharply – meaning you own a home worth less than you paid for it.
- Mortgages, as we know, take a bit of time – if you have an emergency but have poured all your savings into a property, you will not be able to respond quickly.
- Investment returns vary widely, but housing is normally a long-term investment with gradual, steady returns. If you are paying cash to invest everything you have in a home, it might be smarter to diversify and opt for alternative investments alongside a small mortgage to make your money work harder.
To summarise – you can buy a house (or any property) with cash.
Although the seller’s solicitor might want to run through a few checks to verify the source of your funds and comply with money-laundering regulations, the process is fairly smooth.
However, you should conduct due diligence on any property and be mindful that the safety checks involved with mortgage lending will not apply – so you need to budget for an independent valuation, full structural survey and other background checks of your own accord.