Buying house with cash (none, or tiny mortgage)

Sillychuckie

I understand from an article I read about Martin Lewis that his first house/flat which he got in Kengsington, was purchased without any mortgage.

I am in a similarly fortunate position and can (at a stretch), probably get my first house outright. Actually, I'll probably borrow a tiny bit, but mostly because I want the 5k bonus from a NatWest Homesaver account and have them look after the deeds.
Anyway - I'd like to discuss this on the forum and hear other peoples views.

I have been told by a few financial 'advisers' (though tied - so I don't trust them much), that I would be better to 'leverage' the value of my home by borrowing far more.
One essentially stated:
"Even though you don't need a 3 bedroom house yet, you would be better to borrow and buy one, than get your flat outright." He cites inflation protection and house price return as the main reason, and says holding too much cash is pointless.
Another adviser said I should borrow more against the house and put it into investments which will outperform cash in the long term. However, to me, that makes assumptions and effectively asks me to gamble my home (which reminds me of recent events in the US, with owners refinancing and getting hurt when rates went up (or they lost jobs)).

I can appreciate the first advisers point of view. They say I should borrow to get the best house I could possibly afford, in the nicest area. However, I like the idea of security of owning my place, and not worrying about losing my job (or my home), which I would do if I borrowed loads and had to repay it over the next 20 years.

What do people think is the appropriate balance? What is a healthy amount to borrow (if you didn't need any)? Might I be being too risk-averse, by dumping 95% of my savings into a house and owning it 100% (at age 27?).... Will it harm my potential future worth? Why did Martin do this do you think?

Interest in opinions. Thanks.

carefullycautious

I will be very interested in the answers to this as I am in a similar position but at the other end of the age scale. So dont have x amount of years to rebuild finances.

Just to add dont have enough for huge property as do not now need one, so on a smaller scale ie bungalow/flat

Wee_Willy_Harris

I think it's a personal lifestyle choice. You could borrow up to the hilt and get a bigger house than you need right now (though that can change surprisingly quicly!) or buy what you can afford outright and have a lot more "fun money" in your pocket. Personally, when I took out my mortgage, I wasn't interested in how much I COULD borrow, but how much I needed to repay whilst still enjoying a very similar lifestyle (holidays, cars, meals out, entertaining, travel etc). Maybe, in the long run, I might lose out on paper, but I'm having fun doing it.

Aspiring_Writer

Personally, I would borrow the least amount you can get away with, none at all would be even better. I would not be exposing myself to a mortgage if you don't have to. Certainly not when the economy in the UK and Europe is so uncertain.

But....find yourself a decent IFA, preferably through recommendation, not a tied advisor, and get some proper advice before you do anything.

Good Luck.

Milliewilly

I had exactly this scenario from an independant advisor. He advised me to borrow as much as I could (which in early 2007 could have been as much as 5 times my salary) to get the best property in the best area and thus as prices went up maximise my profits.

In the end I borrowed 1 x my salary at the time because this got me a house that suited my needs rather than a massive house for me to rattle round in on my own and only took the loan over 15 years.

Thank God I didn't listen to him (but he did get me base tracker +0.17 for life).

My advice is to buy what you need and borrow as little to do it as possible if any. Cash is king.

clutton_2

when i bought my first home a long time ago an accountant i worked with told me to borrow the maximum i could... had i listened to him i would have lost my home as interest rates soared in a Very short space of time, and i was in dire financial straits even though i had left what i thought was a huge margin for safety...

being 27 and having all this money... i think you should be getting advice from 2-3-4 different financial advisors about a pension... i know its really boring when you are that age.. but there sure as heck wont be a state pension when you get to 65....

a VERY wise adage to heed is .... dont put all your financial eggs in one basket... like property or shares or investments.... spread the risks

even with a house you are gambling that the property market will continue its historical general trend of ever upwards....

,my suggestion might be maybe a smaller property with a small mortgage, and a lump sum to start off a pension pot and regular monthly sums into that as well....

what ever you do - take your time and make sure you research any institution/person that you give a lot of money to

best wishes

minimoocow

It depends what you'd do with the money if you don't get the mortgage:

If you buy with cash you could use the money you would have been paying on a mortgage to invest. You won't have a large value to start with but over time you could build up a fair sized fund.

If you'd just spend the cash on living the high life maybe you'd be better getting a mortage now so that you aren't tempted

If you are looking to use the cash borrowed to invest elsewhere you'd need to factor in the mortgage interest - for me it would be too much of a gamble but it depends how risk averse you are!

BitterAndTwisted

Buy somewhere freehold and borrow as little as you can to acquire it

DVardysShadow

BitterAndTwisted wrote: »

Buy somewhere freehold and borrow as little as you can to acquire it

Agree with this. I think a few years down the line, flats will turn out to be the housing no one wants - what with the lack of control over whether units in the same building get social tenants or just low quality private tenants, arguments about laminate flooring, perpetual grief over management charges.

Sillychuckie

OK, thanks guys for all the comments.
I prefer the idea of keeping a very small mortgage (something I can pay off in 1-3 years), but just wanted to be sure I wasn't missing something obvious. All these 'advisors' look at me like I'm nuts. I appreciate they are tied, so will stick to my original plan. Something I won't rattle around in, and freehold.
Can upgrade in 10 years if I need to (and, if things continue to go well in life, I'll have no problem affording). It will be nice to have disposable income I can use to save for property number 2.

Advisor 1 says: "Mortgage on property 1, to buy property 2 NOW.. (or even property 3 if you can borrow enough and stump up 3 deposits).. and rent them out. Rental will cover mortgage costs, and in 25 years, you are laughing as an outright owner of 3 properties."
I guess that is another question entirely though, and I'm not sure I'm landlord material just yet. A stress free life will be nice for the next few years anyway - can always review in future and take on more when I feel up to it, perhaps releasing equity at a later date (though no doubt at a higher % than those available now). The guy makes some sense though.

Cheers.
SC.

Henry_P_Chester

These 'advisors' are assuming the property market will continously rise. Buying a home is a risk why leverage that risk. Borrow as little as possible to buy one property and save as much as possible to get the next one up mortgage free too. Like you say the home would be always be yours and no one can take it from you even if you losr your job.

These advisors advising you to gamble in a market you have no experience of. Would blindly borrow hundreds of thousands to buy shares? Why people do this to speculate in property is beyond me. Property prices were the same in 2000 as they where in 1990. There is no reason to suggest and different in 2020 with the current economic climate.