Buying house with cash (none, or tiny mortgage)

Jonbvn

I won't touch on the HPC/HPI issue. We have a whole subforum to discuss this issue at length. However some key issue you should consider:

1. How will you pay the mortgage if you lost your job or something similar effecting your income?

2. Forget about the bank keeping the deeds. All deeds are now held electronically by the Land Registry.

3. BTL now seems like a risky proposition ATM, given various changes. Spread your risk and diversify.

jonewer

We are in a similar position.

We could either buy a small place for cash or a larger place for a modest mortgage (about 1.5x combined income).

We decided to go with the mortgage and the larger place because of the cost and hassle of moving, and the erosion of savings by inflation and virtually zero interest rates.

But we plan on spanking the mortgage with maximum overpayments, 10 year term, and a lump payment sum at the end of the fix. Hope to have it paid off in less than 5, down to 1x joint income in 2.

Really, its personal choice. Its a matter of balancing risk of default against the cost and inconvenience of moving, and effective negative interest rates on savings.

franklee

All the advisers should be asking what level of risk you are prepared to take.

Leverage is all fine and dandy in a rising market as it amplifies your gains. Use 20K deposit to buy a 200K house, prices rise by 20% and you've "made" 40K. In a falling market the reverse is true and leverage amplifies your loses. Use 20K to buy a 200K house, prices fall by 20% and you've "lost" 40K.

Look at the economic conditions, record low interest rates but for how long? CPI at 3.7% well above target, weak pound meaning we may be importing more inflation, last government pumping money into the economy which in normal times is inflationary, record debts, cuts in government spending to get the budget deficit under control, the end of a huge house price boom. Is now really the right time to be taking risks?

Of course you have to pay interest on all the money you owe which over the years mounts up. Inflation usually leads to higher interest rates especially on loans, maybe not on savings.

On a practical note a larger property likely has higher council tax, fuel bills and maintenance costs.

Your call.

PasturesNew

Buy for cash, then nobody can take it away from you. Buy something low maintenance.

Once you own it, outright, you can then enjoy all your money how you like. And whatever happens you don't risk losing your roof over your head. There's a lot to be said for sleeping well at night.

Once you own your house, you can work part-time and doss about the rest, or start your own business, or study to change direction. You can enjoy your life and not feel somebody else owns you (boss + mortgage company). No more hoops to jump through!

getmore4less

You can do both.

If you got an offset mortgage for a lot more than you need you can think about the alternative investements and do them if/when you think it worth while a lot easier than trying to leverage later.

In the mean time you offset so costs are minimal.

It also depends a bit on your curent income and budget, would removing all your cahs leave you short or is there plenty of income?

As for the property.

Agree freehold a must
I would also consider future needs a bit here, moving is expensive so avoiding a move by spending more can actualy cost the same or less.

Mind you if there are moves on the cards say through work then a good rental may be an option, if you fancy becoming a landlord, gross yield is the starting point 10% is good. Again having the borrrowing in place with an offset means you can get you money out easily if needed.

Good resale is the key to moving, also there is the old saying buy the crappiest hose in the best street, which still holds today, buy cheap but invest over time to bring it up to standard(another reason an offset can work you have the funding in place, send a bit then rebuild offset pot a few times).


Start planning now how you will replace earned income and when you want it to be enough to live off.

Early retirement looks a lot more attractive the older you get, at 20 I was ready to work till I dropped not any more, the sooner you start the plan the sooner you can do it, changing your mind to carry on working is a choice you cannot underestimate.

With a house paid for if you can save about 1/2 your income you could retire in around 15* years or with good investments by the time you are 40.


* 15 years is with a 5% return over inflation, 20years needs round 3.5%

poppysarah

Phil Spencer summed it up the other night.

For most people the aim is to get from the bottom of the ladder to the top in as few goes as possible. The cost of removals and selling and buying houses means that it makes sense.
He also said the person who rolled the dice the fewest times wins - making an analogy with snakes and ladders perhaps, but he also failed to mention that stopping on a snake (bad house purchase/negative equity etc) could throw you back to the start of the game.

What's sensible for you? How secure is your job? Why not save up for a bit longer whilst you look for the perfect house?

House is always better than flat. Flats have service charges and costly maintenance issues as well as more neighbours to annoy you.

Don't factor in a lodger to pay the mortgage but get one and pay it off double quick - that's if you need one in the end.

It might take you two years to find the house you want.

DawnW

I am a lot older than the OP, (though still working age and eligible for a mortgage) and was fairly recently in the same position. I bought something I liked, with just a small mortgage, and can still save, and comfortably afford new cars, holidays etc, should I so wish. My property is modest by many people's standards (decent sized 3 storey Victorian terrace with a garden and outbuildings, in a nice street, at the edge of a nice small town in SW UK). I could have borrowed several times the amount of my mortgage, and people have asked why I did not take this up, and buy a larger, more upmarket house. My job is stressful enough though, without the added stress of being mortgaged up to the hilt for no good reason. I just don't need it. Besides, if this house were transplanted to London, it would have cost a fortune in comparison with the £142k I paid for it, so it is all relative.

Of course, the OP is a different generation, and may have different priorities (didn't sound like it though). I would recommend making good pension arrangements and avoiding a big mortgage which, if interest rates were to shoot up as they have in the past, or the OP to lose his / her job, might put them in a very difficult position.

None of us know what will happen even in the near future. Property prices can fall, and pensions lose their value, we just don't know.

My mortgage will be paid off at the end of this year (after 3 years) and even if I lose my job, I will have somewhere secure to live. Some think this is too risk averse, and it is possibly true; I will never be 'rich'. All depends on what you want out of life I guess.

Good luck to the OP, whatever they decide.

Gwhiz

I've been fortunate to be able to buy my homes for cash for the last 11 years. Trust me, there is nothing like being mortgage free!!

Your attitude to risk is obviously the key here but it's nice not owing anything to anyone

vegasvisitor

clutton wrote: »

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....

Can I ask, what makes you think there'd be no state pension? Are you saying you think the government are sending out false pension statements (ie I am 35 and have requested pension statements for my state pension)? I've heard this said before and I asked the Pension Office a few years back if it would be phased out, but they said they can't do that as we're paying NI to build up a pension so they can't just take it. I hope I'm right....:p

vegasvisitor

Back to the original post though, I guess it would be tempting to buy the 'lesser' house and not have any or much mortgage. However, if you can afford to pay a mortgage (I suspect you can if you have savings unless you got them from somewhere), then maybe you could consider a small mortgage to get a slightly better house, more sellable area or something? Depends what your needs are really and what else you might rather spend your money on!