To buy a house in cash even if it means smaller house and using savings?

[BoxAndKnife]

DH and I are 1st time buyers in the south-east. We are in the very fortunate position to be able to afford, potentially, to be cash buyers but it would mean a smallish property (eg 2/3-bed terrace) in probably a less sought-after area (but still perfectly acceptable imo).

We would also have to put some of our savings in as well to cover stamp duty, fees etc.

Alternatively we could apply for a mortgage, keep our savings, and buy a bigger house in a 'better' area. We are both over 40 so would be looking at a relatively short mortgage term eg 15 years.

The idea of being mortgage-free really appeals to me, though, especially as my 2-year plan is to set up my own business. It would be great not to have the worry of mortgage repayments. But we would definitely have to make more significant compromises on space etc.

What would you do? Does the freedom of being a cash buyer outweigh the negatives of a smaller place, or should you always buy the best house you can afford?

We went for the option of a smaller place, but with no mortgage.

I have never regretted it.

We've been badly impacted by Covid-19, and the thought of having a mortgage over our heads and having to worry about that would have been an extra stress that we really didn't need. So I'm glad we made the choice we did and don't have to worry about it.

We had a very large deposit as first time buyers (definitely could have bought a smaller house with less outdoor space in cash). We took a mortgage and got the big house and land we wanted. You aren't locked into a mortgage forever. You can overpay regularly or pay it off early, much easier if you get a mortgage deal that allows you to do this with no penalty. You can remortgage as necessary if circumstances change. It surely would be lovely to be completely mortgage free, but I can't see the point if you aren't living in a house you really love. You could still be mortgage free in a few years with some careful savings with a small mortgage.

For long time investment potential buying the bigger house is the better option.

If you are over 40 you will struggle to get a significant mortgage in the future. Ultimately it depends where you want to live and what kind of lifestyle you aspire to. I would always buy the biggest and best property I can afford as you can always downsize in the future. Not everyone views it like that though.

Most people have to spend the majority of their savings when they move.

Mortgage rates are so low at the moment I think you'd be mad not to. I borrow nearly £200k. Each month I pay back £800, but of that only £125 is interest, the rest is going back to pay the loan (i.e. back to me). Given your strong position, you also may get a great price on a house if you find the right seller atm. I'd definitely get a mortgage in your shoes, but I am obsessed with nice houses!

Can't answer without knowing lots about how you spend your time! Do you have friends/relatives that stay over a lot? Do you work from home? Either of these would favour a larger house. But if no to both, a bigger house is just more to stay on top of!

Bluntly, taking out a £100k mortgage gets you a better house, a better location and savings.

I would take a mortgage and keep your savings in tact. The costs associated with moving to the smaller house or larger house won't be miles apart and if you go with the bigger one you won't have to move again in a couple of years time. Interest rates are very, very low and likely to stay that way for sometime so why not enjoy your bigger house in a nicer area.

Also should say that I have lived in both of those towns and I would definitely go with the Horsham one.

ItsNotAGameOfSubbuteoMatthew

Was going to suggest this too - offset mortgage.

The world is a changed place - I would ensure you have at least 12 months income in savings. It also allows you to speculate in your new business. Small mortgage is neither here nor there in grand scheme.

I would have said cash buy, own outright initially.

But now I've seen the two houses similar to what you are considering I think the Victorian is much much nicer and worth a small mortgage!

Mortgage of £100k over 15 years.. could make quite a difference to your monthly outgoings but the mortgage house and location are much better than the cash option.

Horsham one definitely. As someone else suggested, get an offset mortgage - cuts your interest right down but you have the cash available if you need it. Or just make a chunky over payment periodically to bri the term right down.

A small mortgage now would be so much better as it gives you longevity in the house for a small outlay.

The Horsham house itself is lovely and if you take into account the cost of selling and buying in a few years time it really is a no brainer.

If you are desperate to be mortgage free make overpayments of 10% each month and see how well this works to shorten the term.

I knew M would give me lots to think about! I'd not even thought about things like offset mortgages so that's really useful info thanks.

We were in a similar position. We went for the snaller house in the less nice area which actually is a better fit for us.

We could have afforded quite a lot more if we'd have used more of our savings and got a smallish nortgage. However this would have taken us into another bracket of house with more expensive upkeep, more to clean and a "naice" (rather than a genuinely "nice" but more working class) area.

We are very happy here with our medium sized house and no mortgage has been so incredibly freeing. I feel very safe and secure and it's enabled us to invest in our long term security eg overpaying pension, pension for me as a SAHM, while there still being plenty of money left over for fun.

However, we are considering moving area and will be looking closely at options around offset mortgages.

*MN

Small mortgage/offset mortgage.

That way payments are manageable and you still have savings if you need a new car, boiler breaks etc.

BTW If you are interested in the Horsham house it is cough a tad overpriced so you may have be able to do some decent bargaining especially as you in such a good position. There are also quite a few Victorian conversions like that in Horsham (and west side is generally regarded as "better" ) so have a wee look around as well

I seem to have lost the ability to type coherently. Hope that post makes sense!

My god it’s the cheapest loan you’ll ever get atm. It’s actually foolish to buy in cash. Unless you’re rolling in it.
Why don’t you talk to a financial advisor

It's a tricky time.

I would suggest paying a split of cash, and taking an interest only offset mortgage on the remainder.

Cash in the bank will earn 0% interest right now. Mortgage rates are ridiculously low (right now)

Taking an interest only mortgage leaves you the flexibility to spend on home improvements/new cars/fancy holidays - without having to borrow more money. It's there - if you use some then the only difference will be a small increase on mortgage interest repayments until you build the savings pot back up.

Good points raised upthread though - be sure that you won't want to move in the next few years as stamp duty and the costs of moving is ££££ . Plus house prices may drop - it needs to be a long term investment for you.

Nice problem to have I guess - but think of all your options carefully.

How much space do you need? Don’t think you have mentioned if you have children so need rooms for them and a location that would be beneficial for schools?

It's a cheap time to buy, especially with a large deposit. I would always push myself in this situation. Just do the stress test on yourself in terms of future higher interest rates, although you should be able to fix for next 2-3 years at a great rate currently which will take some of the unknown out of it in the short term. Moving house is really expensive in terms of cost of moving, buying bigger now saves you all those fees if you realise you needed more space in a few years time if you buy the smaller property.

@BoxAndKnife

OK so the voting suggests buy in cash, the comments are going towards taking out a mortgage

That’s because neither option are unreasonable and both are to do with your and your DH’s risk appetite.

Surely the right level of risk is somewhere between what your husband wants and what you want. A soggy compromise 🙂