Are there any risks involved in paying cash for a home?

YoungFIREman

Are there any risks to paying cash for your home?

Is it wise to stay out of debt if you don’t need to go into it?

Thanks a lot, everyone!

Soot2006

As long as you have more cash for maintenance, etc. It's best not to sink all your money into the house esp with mortgage rates so low, in case it needs a new roof, etc, but if you have more money coming in and a good egg nest then no risk .

user1977

Isn't this much the same question as your other thread?

YoungFIREman

Soot2006 said:

As long as you have more cash for maintenance, etc. It's best not to sink all your money into the house esp with mortgage rates so low, in case it needs a new roof, etc, but if you have more money coming in and a good egg nest then no risk .

Thanks so much for your speedy response! Enjoy your afternoon! 

MovingForwards

https://forums.moneysavingexpert.com/discussion/6269898/should-you-get-a-mortgage-or-pay-cash-for-your-home/p1

Other thread, with more information.

If you can be a cash buyer do it, just be ready to explain and show where all the money has come from; keep all your bank statements from when you first started saving to when you buy your property.

YoungFIREman

user1977 said:

Isn't this much the same question as your other thread?

Yes but that was met with snarky comments from self-righteous middle-aged people who seemingly have it all figured out so I thought I’d make a new one 🤗

Grumpy_chap

It would seem better to keep this question matched with the other thread from earlier today:
https://forums.moneysavingexpert.com/discussion/6269898/should-you-get-a-mortgage-or-pay-cash-for-your-home#latest

In direct answer to the question of this thread "Are there any risks involved in paying cash for a home?"
YES.
There are all the risks of buying a home with a mortgage.
There are the additional risks of buying a property that is not mortgageable, so may be difficult to re-sell.  This may not be a concern, or the property may be able to be made mortgageable in the future, but it is a consideration to bear in mind.

To counter that, there are the opportunities to buy a home that is great value, such as via auctions (so long as you research the market and process first).  

LAD917

This depends on how much money you have; what else you may need; and your long-term investment horizon.

Mortgage debt is the cheapest long-term debt you can get, and rates are extremely low right now - normally < 2% for anyone with a decent deposit.  Over time, your investments are likely to outperform this.  Taken to an extreme, many of my banker-type friends take the largest mortgages they can get, interest-only if they can, and have no real plan to pay down principal. (I do not recommend this extreme view.) 

The other extreme is being so debt-averse that you put all of your money into property, and then have no savings.  Your property could appreciate far less than other types of investments, leaving you with a net-loss compared to an approach of a reasonable deposit + mortgage.  You could also run the risk of a huge property decline right at the time you need to move for work, etc., where you're forced into realising a loss and potentially not having enough money to buy your next home.  If you're buying property that requires (significant) stamp duty, keep in mind that buying something affordable for cash then trading up when you have saved more cash may end up costing you more than buying what you need (or something with room to grow) with a mortgage.  I once traded up after two years and spent more money on stamp duty than I had paid in mortgage interest.

Unless you are swimming in cash, I'd be more likely to take a middle ground approach - put down a 40% deposit, which is usually the "break point" for the cheapest rates, and invest the remainder.  If you want, you can make overpayments (up to 10% of the original loan balance each year) with most lenders to pay down the balance more quickly.  This is what I normally do, with the caveat that I now do larger deposits as I get older (75% on most recent primary residence) and do own a couple of investment properties outright.

newsgroupmonkey_

LAD917 said:

Unless you are swimming in cash, I'd be more likely to take a middle ground approach - put down a 40% deposit, which is usually the "break point" for the cheapest rates, and invest the remainder.  If you want, you can make overpayments (up to 10% of the original loan balance each year) with most lenders to pay down the balance more quickly.  This is what I normally do, with the caveat that I now do larger deposits as I get older (75% on most recent primary residence) and do own a couple of investment properties outright.

That's actually a really good point. If you were to pay the max into both your pensions (for instance), history says that they will make more than your mortgage will ever cost you (not to mention it's tax free investment).

If you were to pay heavily into a pension up front whilst you're very young, you could quite honestly stop paying by your mid 40s or even better, retire early.

Look at it a different way. What's better, having no mortgage or being able to retired at 55 (or less) with your mortgage paid off by your late 40s?

grumiofoundation

newsgroupmonkey_ said:

LAD917 said:

Unless you are swimming in cash, I'd be more likely to take a middle ground approach - put down a 40% deposit, which is usually the "break point" for the cheapest rates, and invest the remainder.  If you want, you can make overpayments (up to 10% of the original loan balance each year) with most lenders to pay down the balance more quickly.  This is what I normally do, with the caveat that I now do larger deposits as I get older (75% on most recent primary residence) and do own a couple of investment properties outright.

That's actually a really good point. If you were to pay the max into both your pensions (for instance), history says that they will make more than your mortgage will ever cost you (not to mention it's tax free investment).

If you were to pay heavily into a pension up front whilst you're very young, you could quite honestly stop paying by your mid 40s or even better, retire early.

Look at it a different way. What's better, having no mortgage or being able to retired at 55 (or less) with your mortgage paid off by your late 40s?

Pension isn’t really tax free, you do get tax relief going on but 75% of pension is taxable on the way out.

Also if you wanted to retire before pension age you will need to invest/save in a different vehicle to pension (e.g. stocks and shares ISA) to tide you over until pensions were accessible. 

Sotts

YoungFIREman said:

user1977 said:

Isn't this much the same question as your other thread?

Yes but that was met with snarky comments from self-righteous middle-aged people who seemingly have it all figured out so I thought I’d make a new one 🤗

Wow how rude.