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?

The photos have put everything into perspective! Buy a better house with a mortgage. Think how happy you would be each morning waking up in a house like that first one.

Glad someone else mentioned offset. Didn't know if they were still a thing. We've had ours for years, taken it right down to £1 a couple of times then done things like extensions, used it as a prop when DH lost his job etc etc. It just sits alongside and you whack money in whenever you can. Took out a chunk again at the start of lockdown in case anything crazy like a run on the banks occurred. It's all just sat there with interest earned same as interest paid so no real effect and once all this is over I'll pay it back in again. It's a nice way to have a buffer and provide some security.

We're on our third house, and each time we've bought with (a) a relatively small mortgage) and (b) a mortgage that allowed us to pay it off as fast as we wanted without penalty. That might work better for you than sticking within what you can afford mortgage-free.

One of the mortgages was an Offset Mortgage; it rolled the mortgage together with our savings account, so that we only paid interest on the combined balance. That was helpful as it meant we could keep some money available in case of sudden need for expenditure, but it still reduced the mortgage balance.

One positive of a having a mortgage for a while is that it helps your credit rating. My parents got turned down for credit cards because they'd no credit rating, having never had a mortgage or borrowed money for other reasons.

Personally I would go for the area rather than house. Choose one you like and then see what you can buy with your cash. If you need a mortgage then I would take one. I would always leave around 6 months salary in cash just in case.

Location location location!

I'd go for buying a house in a better location even if it meant taking out a small mortgage rather than paying all off with cash.

I'd take the mortgage and the bigger house. That's a seriously lovely house.
Plus, looks like it'd be easy to sell on, should you ever want to move.

I'd go cash. In fact, that's our plan when our current house ever sells. Mortgages in this climate? No thanks. I don't want negative equity.
But I'd also wait and see if prices drop over the next few months, you might be able to pick up something really decent when the recession hits properly.

Also if you've got the money for the monthly mortgage repayments, why not buy in cash then put that money in a savings account every month, and all the interest you would have paid on the mortgage will be yours to keep instead of the bank's!

It's worth remembering that the interest on a mortgage is peanuts compared to some other ways of borrowing, for this reason when we paid off our mortgage we deliberately left a little bit (just a couple of thousand) so that we had the option of borrowing against it if necessary in the future, then we paid it off when we were in a position where we knew we wouldn't be borrowing again for anything.

So eg if I were in your position I might go a slight step up from what you were planning, and pay almost all of it in cash leaving a small amount of savings and a small amount of mortgage.

I'd love to be mortgage free, so I'd probably go for neither option and look for a 2bed in the nicer area with no mortgage.

Location first and foremost plus if anything covid has taught me is how lucky I am to have all the space I do in my house.

Take a small mortgage, rates are so cheap it's the lowest you will see them. When you remortgage you can always pay off a chunk of the mortgage as well.

I read once that you should aim to be mortgage free by 55 to allow yourself the additional years to build upon retirement. This obv takes into account you had kids hence why its 55. Also around the average age people do pay it off by.

So offset mortgage or small mortgage is where I would go.

Bigger house / better area. With manageable mortgage. It's an investment.

Being mortgage free gives you huge freedom and choices. I’d go for that option every time.

We were in a similar position to you, and decided to go mortgage free. DH (higher earner) is possibly facing redundancy at the moment, and I'm a lot less worried than I would be with a mortgage and low/no savings.

Nicer area. small offset mortgage. Keep some savings. Mortgage rates are so low at the moment and allows you to have money in the bank for emergencies and possible business start up.

I would prioritise the area - if you can afford something you are happy to live in in the best area then go for it. If you need a small mortgage to be able to afford to live in the best area I wd do that. Size of house less of a priority.

I had the same thing. I bought a smaller house for cash.
No regrets

You don't pay stamp duty as a first time buyer. It also increases with the value of the property. If you're going to want to move to a bigger house at some point, you'll pay a big chunk next time. If you get the bigger house and stay, you save this cost.

Ideally for your financial future you want the fewest steps to the house you will spend most of your adult life in (until you down size in retirement if you have/need to). Each house move involves fees and costs that are lost. So.....if you can buy where (area wise) you think you will stay and buy a place big enough for your future needs do that. If you envisage a future with kids buy in an area with good schools, buy a place with enough bedrooms and storage space (garage whatever) for all the crap that comes with kids . If this means a small mortgage then go with it. Borrowing rates are incredibly low at the moment and unless the recession is badly managed so as to cause inflationary issues then I can't see the bank of England raising rates for a good few years. Of course make sure you can pay the mortgage even if rates rise....

Is it an option for you to get the house you can afford in cash, but with a 20% mortgage?
This way you have a reasonable cushion in your back pocket. Considering that we dont know what is going to happen with the economy, Coronavirus and Brexit and a second wave.
I think it would be prudent to ensure that you have enough money to survive on for around a year should the worst happen and both you and your DP end up severely affected financially.

You don't pay stamp duty as a first time buyer.

That's only if the property is

Buy in cash for sure if you can.

I’d 100% take out a mortgage. You’d get a really cheap rate and could put your savings to better use in investments or even pensions.

The first house