Cash house buying or 50% investment / mortgage

sidneyyoungblood

A bit of advice please , looking to buy my first property this year at the age of 50 this year.

Have enough to buy the house outright if needed  ( around 250- 300k ) but not too sure if this is the right approach..

Would it be sensible to use 50% cash for the deposit make up the rest in a mortgage ( around 4% ) and invest the rest in a tracker and  hope that over the same period of 15 years I can make an average of 10% returns to pay off the mortgage plus a bit extra  . I know that the interest rates will fluctuate as will the returns but atleast it is working rather than just sitting in a property ( if that makes sense ) ..


I would still have enough in savings to cover the expenses if the markets take a downturn .

The estate agent says as a cash buyer  I will be more desirable to the seller and maybe to get more of a discount off the property price so need to factor this in aswell ...

Keep putting off buying  a property but has come to the stage where it is now or never.

Any advice would be appreciated

Yorkie1

I don't think cash buyers always get quite as much off a property as you might think, so wouldn't factor that heavily into your considerations.

It might also be worth considering what provision you have made for retirement / pensions, at what age you plan to retire vs state pension. Have you checked your state pension forecast? Will you need to fund a gap between leaving work and the SP, and would you have enough to do that? 

If you retired before paying off the mortgage, would you have sufficient income to do the repayments?

But I agree that it's worth trying to get your own roof over your head. I think the prospect of renting throughout retirement is getting ever more uncertain.

alamest

Here’s a short, clean MSE-style reply:

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At 50, I’d be weighing risk and peace of mind as much as potential returns. Buying outright gives certainty — no mortgage, no rate risk, and lower outgoings going into retirement.

The 50% mortgage + investing route can work, but it depends on markets performing well while you’re still happy carrying debt later in life. Even with a buffer, that’s extra risk to manage.

I also wouldn’t rely too heavily on a big “cash buyer discount” — sometimes it helps, often it doesn’t.

Out of curiosity, how important is it to you to be mortgage-free by retirement, and do you see this as a long-term home?

eskbanker

sidneyyoungblood said:

The estate agent says as a cash buyer  I will be more desirable to the seller and maybe to get more of a discount off the property price so need to factor this in aswell ...

I could be wrong but suspect that rather than differentiating between 'fully cash' and 'partly mortgaged', they're simply meaning that you don't have a property to sell to finance the purchase, so no chain and less risk of transaction disruption.

MrWannabe

Fully agree with the comment about needing to weigh up risk and peace of mind.  I put a great deal of effort into becoming mortgage free at 50 (via overpayments).   In the years of overpaying the mortgage, I would often see videos & read articles from financial experts, advising that the smart approach is to focus on investments as opposed to clearing the mortgage (to be fair though, most would acknowledge that having the peace of mind of being mortgage could not be underestimated).   In the years of overpaying my mortgage, my mindset was always to disregard/ignore the comments about investing being the smarter choice...in my head, I just wanted to know that the roof over my head was fully mine.  

Ironically, after becoming mortgage free & only then starting to invest in S&S ISA (global index tracker), I keep have niggling thoughts of, 'what if I had just invested all along rather than over paying the mortgage'!!!!   I guess there was never really a right or wrong decision, but overall, if in the same position again, I would still focus on becoming mortgage free.

For the OP, maybe a compromise would be to get a mortgage, but far less than the 50/50 split (maybe 80% cash deposit on the house purchase / 20% mortgage).  Once the mortgage is in place, invest the 20%, but also chip away with overpayments on the mortgage (even if only minimal overpayments).  

InvesterJones

eskbanker said:

sidneyyoungblood said:

The estate agent says as a cash buyer  I will be more desirable to the seller and maybe to get more of a discount off the property price so need to factor this in aswell ...

I could be wrong but suspect that rather than differentiating between 'fully cash' and 'partly mortgaged', they're simply meaning that you don't have a property to sell to finance the purchase, so no chain and less risk of transaction disruption.

That would be my understanding to - since you'd have a mortgage agreement in principal already there's not as much risk on that side, it's more the lack of chain that would be a positive.

From a purely financial perspective, mortgage + equity investment has performed better in the past, so you get a headstart on the even larger financial milestone: retirement planning. Even more so if at least some of that investment is done in your pension rather than held to pay off the mortgage. But the past is not a guarantee of the future.

Also check your credit score - regularly paying a mortgage is one way of boosting it if needed.

leosayer

If you did take out a mortgage and invest how would you be paying the monthly payments?

What makes you think you can get 10% average returns?

What will you do if we hit a bear market and stocks drop 40%?

Albermarle

MrWannabe said:

Fully agree with the comment about needing to weigh up risk and peace of mind.  I put a great deal of effort into becoming mortgage free at 50 (via overpayments).   In the years of overpaying the mortgage, I would often see videos & read articles from financial experts, advising that the smart approach is to focus on investments as opposed to clearing the mortgage (to be fair though, most would acknowledge that having the peace of mind mind of being mortgage could not be underestimated).   In the years of overpaying my mortgage, my mindset was always to disregard/ignore the comments about investing being the smarter choice...in my head, I just wanted to know that the roof over my head was fully mine.  

Ironically, after becoming mortgage free & only then starting to invest in S&S ISA (global index tracker), I keep have niggling thoughts of, 'what if I had just invested all along rather than over paying the mortgage'!!!!   I guess there was never really a right or wrong decision, but overall, if in the same position again, I would still focus on becoming mortgage free.

For the OP, maybe a compromise would be to get a mortgage, but far less than the 50/50 split (maybe 80% cash deposit on the house purchase / 20% mortgage).  Once the mortgage is in place, invest the 20%, but also chip away with overpayments on the mortgage (even if only minimal overpayments).  

This and similar questions get asked on the forum all the time. 
Usually the best answer is to do a bit of everything, so you comment in bold is probably hitting the right note.

OP - You have given no info about other aspects of your finances/yourself, and these would affect any decision. Such as -
Pension provision ?
Cash savings?
Other debts?
Married/partner?
Job security 
etc. 

Plus you said this .
and invest the rest in a tracker and  hope that over the same period of 15 years I can make an average of 10% returns to pay off the mortgage plus a bit extra  . I know that the interest rates will fluctuate as will the returns 

I would still have enough in savings to cover the expenses if the markets take a downturn .

You can not bank on an average return that high, you would be better to think about 7 to 8% and still not guaranteed of course.
It is not IF the markets take a downturn, but WHEN, and how many times and for how long. However in theory at least the 7 to 8% average should take account of that. As long as you do not panic and pull out when it is already down a lot.

grumpy_codger

As a 100% cash buyer be prepared for stricter AML checks by your solicitor. So, if tracing your savings deep into the past can be a problem, be very cautious when choosing a solicitor as degree of AML paranoia varies. 
I believe it's a lesser issue with a small mortgage.

QrizB

There was a thread about "cash buyer vs. renting"earlier in the week. There was some useful discussion of investment returns vs. mortgage rates which would be relevant here.

Sadly it seems to have vanished ...

Broadly speaking, if you think you can earn more on the investment, net of charges, than you'l be paying in mortgage interest then it makes sense to borrow for the property and invest the case.

I would however caution that "I can make an average of 10% returns" is rather optimistic; just look at how the markets fared following the dot-com bubble, and/or the GFC, to see how this could actually turn out.

sidneyyoungblood

Albermarle said:

MrWannabe said:

Fully agree with the comment about needing to weigh up risk and peace of mind.  I put a great deal of effort into becoming mortgage free at 50 (via overpayments).   In the years of overpaying the mortgage, I would often see videos & read articles from financial experts, advising that the smart approach is to focus on investments as opposed to clearing the mortgage (to be fair though, most would acknowledge that having the peace of mind mind of being mortgage could not be underestimated).   In the years of overpaying my mortgage, my mindset was always to disregard/ignore the comments about investing being the smarter choice...in my head, I just wanted to know that the roof over my head was fully mine.  

Ironically, after becoming mortgage free & only then starting to invest in S&S ISA (global index tracker), I keep have niggling thoughts of, 'what if I had just invested all along rather than over paying the mortgage'!!!!   I guess there was never really a right or wrong decision, but overall, if in the same position again, I would still focus on becoming mortgage free.

For the OP, maybe a compromise would be to get a mortgage, but far less than the 50/50 split (maybe 80% cash deposit on the house purchase / 20% mortgage).  Once the mortgage is in place, invest the 20%, but also chip away with overpayments on the mortgage (even if only minimal overpayments).  

This and similar questions get asked on the forum all the time. 
Usually the best answer is to do a bit of everything, so you comment in bold is probably hitting the right note.

OP - You have given no info about other aspects of your finances/yourself, and these would affect any decision. Such as -
Pension provision ?
Cash savings?
Other debts?
Married/partner?
Job security 
etc. 

Plus you said this .
and invest the rest in a tracker and  hope that over the same period of 15 years I can make an average of 10% returns to pay off the mortgage plus a bit extra  . I know that the interest rates will fluctuate as will the returns 

I would still have enough in savings to cover the expenses if the markets take a downturn .

You can not bank on an average return that high, you would be better to think about 7 to 8% and still not guaranteed of course.
It is not IF the markets take a downturn, but WHEN, and how many times and for how long. However in theory at least the 7 to 8% average should take account of that. As long as you do not panic and pull out when it is already down a lot.

Thanks for all the comments .

1 - Self Employed - no current pension - small amount in a SIPP
2 - have a s&s isa with around 150k in it at the moment 
3 - no debts
4 - single


Issue is job security I sell online and the last year has take a massive hit with me around 30% down on previous years .



Just getting really stressed about it all really , feeling I missed out on buying a property.