Buying a house with cash: what to look out for

When you're planning on buying a new home, there are so many expenses to consider that, sometimes, it's nice to dream about what it would be like to be able to buy your home outright without needing to take out a loan or leave yourself struggling to cope with the rest of your living expenses.

The term “cash buyer” is used to describe someone who can do just that - purchase their planned property outright without needing to get a loan or involve a mortgage broker.

For most people, this is an unlikely situation that they would find themselves in but being a cash buyer is more widespread than would be thought, with over a third of purchases now coming from buyers with the money available to buy the property outright.

However, it should be made clear that there are restrictions on the definition of a cash buyer, the principal one being that the money must be readily available at the point that an offer is made on a property, rather than relying on the money coming from the sale of another home.

This means that a prospective buyer must have already sold the property they are relying on providing the funds to buy their next property and, crucially, they must have received the money from that sale. Nevertheless, any plans to use an existing property to provide the funds for a cash buyer needs to be worked through carefully, and ideally with the guidance of a conveyancing solicitor, so that you can confirm you are in a position to put in an offer.

So, to be a cash buyer, you need all the money available to purchase a property at the point that price for has been agreed.

There are certain freedoms that come with being a cash buyer for a property:

Chain-free

Since you are not reliant on the sale of another property as part of the purchase of your next property, you are no longer part of a longer chain. In fact, you are the start of a chain with your seller the next link and so on, but what happens beyond your purchase is far less likely to impede the progress of the transaction. There may be a small impact if your buyer wants to co-ordinate their sale to you with the purchase of their next property but the impact on you is minimised by your status of being a cash buyer since the funds are readily available and you won't be involving any mortgage lenders. Finding a mortgage naturally slow things down as funds need to be ratified and transferred along the chain.

Fewer speed-bumps 

Because you are buying with cash rather than involving any lenders, the process will be less stressful than going down the alternative route. Applying for a mortgage and finding a property you want to buy before the mortgage in principle agreement expires all conspire to make the whole process increased in anxiety, but it also adds significant duration to the timescale.

• The process for buying a property with cash follows these familiar steps:
• Find a property that you can afford with your cash sum
• Make an offer to the seller, with the added information that you are a cash buyer
• Confirm your proof of funds (see below)
• Agree the offer with the seller
• Instruct your conveyancing solicitor to manage the legal side of things on your behalf - again noting that you are a cash buyer
• Appoint a chartered surveyor to check the structural integrity of the home you're planning to buy (not a requirement but always worth understanding what you are buying and what any problems might exist before committing yourself)
• Exchange contracts and pay the agreed deposit amount via your conveyancing solicitor, setting the completion date
• Carry out final legal checks
• Complete on the property and pay the residual amount
• Pay any stamp duty and register your name as the new owner with HM Land Registry

Reliability

As far as your seller is concerned, if you are a cash buyer, you are far more reliable than someone who is depending on a mortgage to purchase a new home. Even with a mortgage in principle agreed, the mortgage company can still withdraw its offer from a prospective buyer at any time for any reason. 

This means that if a sale offer is withdrawn, your seller is left with trying to find a new buyer while having to deal with the disruption to the plans for their own purchase - possibly even causing that purchase to fall through. 

With your verified cash sale, there is the safety net for them to take on the sale with you.

Flexibility

As a cash buyer, and assuming you have sufficient funds, you have the flexibility to choose whichever property you want to buy. 

There are so many reasons that a lender might decide not to offer a prospective buyer a mortgage loan (e.g. the construction methods of the property, the short lease that might be on it, the state of the property which requires significant work, the results of the survey, and so on). 

With the money readily available as cash, you can choose whichever suitable property you want from the market.

Security

Outside of the process of physically buying the property, being able to pay for it with cash means that you are significantly more secure from a financial standpoint. 

Taking out a mortgage means monthly repayments, and, for its duration, your home is the security that the mortgage lenders use in the event of defaulting on those payments. 

Should you get into financial difficulty in the future (for example, through illness, losing your job, or some other financial impact), then the mortgage lender is within its right to seize the property, repossessing it to guarantee reclaiming the outstanding amount.

Interest-free

In addition to the monthly repayments required by your mortgage lender, they will charge interest on the loan which will be factored into the amount that you need to repay. 

Naturally, with buying in cash up front, there are no repayments to a mortgage company and, by definition, no interest to be added to any amount.

Lower asking price

The benefits to the seller of the home you are buying with cash mean that they are guaranteed to receive the money for the property with little or no risk. 

Consequently, you might want to strike a deal with the seller to lower the price that they are asking, since they will be taking advantage of the speed at which you can move and the reliability of your transaction reducing their own stress connected to the process. 

However, your seller may reserve the right to maintain the asking price when the home was put on the market to protect their own investment in the property.

Broader choice

Being a cash buyer opens the possibilities and choices of properties that are niche and may only be available to cash buyers only, which will be advertised as such. 

These are usually highlighted as being for cash buyers because there are reasons why no mortgage lender will provide prospective buyers with a loan to buy it. 

If this is the case, you might even be able to negotiate further reductions in the price since the seller is likely to want to be rid of the property quickly (but be sure to understand why it's unmortgageable and what remedial work is required before buying it).

Auctions

When you go to auction to buy a property, you'll be required to make a down payment once the hammer has gone down on the bid, following it with the remaining payment within 28 days of the auction day itself. 

Without requiring a mortgage to pay for any of the amount that you've agreed to pay, you avoid the stress of trying to ensure any loans are supplied within that timescale. 

But going to auction opens further choices for a property, so long as you do your homework on your bidding choices so that you know what additional investment you'll need to bring it up to a habitable space (usually the reason why mortgage companies won't lend on cash buyer only sales). 

You'll also be able to avoid being gazumped since the accepted bid when the hammer goes down is a legal contract between you and the seller.

While there are some very clear advantages to buying a property outright with cash, there are always going to be downsides associated with any plans that need thinking through before you commit.

Investment

One of the key reasons for anyone wanting to buy a home outright with cash is as an investment in a market where history suggests that prices will continue to rise.

Not withstanding the purchase as a living space, you might want to question whether putting all your money into one investment is a wise choice, particularly as it won't be a speedy source of money if you need to find a large amount of money to cover an unplanned event. 

You might want to reconsider where you are planning to use your bundle of cash, and perhaps talk to an investment expert.

Liquidity

As pointed out, it'll be difficult to get hold of the money sunk into the home, so you need to think about how you are going to afford the day-to-day expenses of living to ensure that you can afford to buy the home outright with the cash that might be best used elsewhere.

If you buy your home with cash, you can always organise a mortgage on the home, but be aware that this will take some time to sort out and you'll have to go through the standard affordability checks set by the lender.

If you're mortgaging the home to pay for day-to-living, for example, the lender will be highly reluctant to lend you the money because the risk of not paying the monthly repayments is too high.

No guarantees 

It is the case that some sellers will be happy to drop the price of the property they are selling because of the extra comfort and the reduction in stress that a cash buyer can bring to the transaction.

However, you shouldn't assume that this will always be the case - from the seller's point of view, it's their investment and they will usually want to try to get as much money in the sale as possible. 

Ultimately, the decision on what the price agreed with the seller comes down to their circumstances and you won't necessarily be able to predict this in advance.

Fall-throughs

Even if you have the cash to buy a property outright, thus shortening the elapsed time to completion and being a more attractive proposition to the seller, there may still be issues that means the transaction fall through.

You might have a survey done and find that there are expensive remedies that need to be carried out that the seller is not prepared to negotiate on, or someone else comes along with a higher offer (perhaps themselves a cash buyer) that the seller accepts over yours (a process known as gazumping).

As stated earlier, the process of buying a home with cash only is similar to a standard purchase with a mortgage, although contracted in its time scale because you don't have to go through the process of finding a lender to provide the funds.

The additional step when buying solely with cash requires you to provide proof of funds. Initially, this will be requested by the estate agent and then verified by the conveyancing solicitor. 

This is for two reasons: first, to verify that you truly have the cash available to back up your cash-only offer; and second, it's a legal imperative to confirm that the funds are not from the proceeds of various crimes under the anti-money-laundering regulations.

There are several ways of proving you have the funds:

• Bank statements that ideally go back a month or more
• Published accounts if you are self-employed or run your own business
• Written evidence that the funds are covered by a verifiable gift, or through a bequest or probate
• Written evidence of a cash prize or lottery win to cover the value of the funds required
• Written evidence of a pension payout
• Written proof of dividends and sales of shares

It is also worth pointing out that you'll be required to provide a verifiable proof of where the funds came from.

And don't forget that the sum of money that you have is not only for the value of the house, but also to cover the stamp duty payable, legal costs, estate agency fees, auction fees and anything else that needs to be paid by you in connection with the purchase of the property.

If you are planning to buy a home with the complete cash sum, you'll need to consider the implications and the additional legal requirements.

The experts at Homeward Legal are well-versed in all aspects of the conveyancing process, providing a quality service at a fee that is great value for money!

Call  to get your conveyancing quote started, or to discuss your concerns with your plans to purchase or sell your next home.