Buy with cash or get a mortgage?

[Candaceowens]

A property had become available that I absolutely love. It's completely run down and needs a full renovation, I've been looking for something like it for years. The location is perfect and it would be a good investment however, I could see myself living there indefinitely.

We have enough money to buy it whilst keeping out current home, but not enough money left over to do all the work.

Would you

A) Buy it outright and work on it as you earn.
B) Buy it with a mortgage and use your funds for the work.
C) Buy it outright and get a smaller mortgage to pay for the work.
D) Buy it and do as much work as you can with the money you have left, then move in (with it unfinished) and sell current home to finish it.

Or maybe another option I haven't considered? D is my least favourite.

I think I’d probably opt for D assuming you can get it to a liveable condition before moving in. Avoiding a mortgage would be such a bonus.

missed that D was your least favourite!! Do you have kids? If so then living in a project would be much harder than if it’s just adults.

If you think other people will want the property then you should say you are buying mortgage free as that is normally a great incentive for a seller to accept your offer over other buyers. If there is no one else interested a cash offer may still help you get a lower offer accepted as the estate agent should see the value in cash .

When I was in a similar position a few years ago I mortgaged the house I was living in to pay for the renovations to the house I had bought - is that an option for you? That would be better than your option B as you would be a cash buyer but you could be mortgaging your current property whilst the conveyancing process goes ahead so you have the funds ready on completion to get the work done rather than waiting to mortgage a house you have just bought.

My only reservations would be the cost of renovations nowadays and what will happen with the budget and SD and CGT if you buy a second property

D is what I'd do but not what you want to do, which is what matters most. Depends on the size of the mortgages I guess. Just remembering that while mortgages aren't awful at the moment, they aren't exactly great and the money you'd be spending on interest is money lost for renovation.

I think you need to buy cash incase the property won’t qualify.

Pay cash. Remortgage your current home to help finance the renovations and then sell your home. You’ll have 2 properties going up in value.

Why don't you want to sell your current house? Option D actually sounds the most logical to me. You're going to be living there so why do you need another house too?

Is the house actually mortgageable? If it’s in that much of a state it may not be…. (Needs usable bathroom, kitchen & services etc). Agree being a ‘cash buyer’ will make you more attractive to the vendor. If you can do A, that’s the most risk free…

Keep in mind that it’s extremely expensive to renovate nowadays unless you are in the trade yourselves.

you will also pay extra stamp duty on a second home plus the interest rate is higher on a buy to let mortgage plus it is likely that second home owners will be targeted in the budget

How much on the renovation? And would you get a builder to do it (quick but expensive), manage trades yourself (much slower, still expensive) or diy (incredibly slow, cheapest option usually)?
You will get the stamp duty back if you sell your current house in time.

English and Welsh councils can now charge double council tax on properties empty for more than a year. This is a recent change.

I'd want to get the renovations done over a reasonable timescale and move in. If they drag on over years and years I think that's a false economy with not paying a mortgage for a short period. Paying double council tax, expensive insurance for an empty house having building work done, the cost of labour and supplies going up, the house deteriorating faster if it's empty,.

So I'd look at B, C or D and be pragmatic. Is it currently mortgageable? Is the house in demand in which case being a cash buyer would be a plus?

C or D would probably be most sensible as they give more flexibility if the work is more or less expensive than you expect.

You need to potentially think about stamp duty and capital gains tax issues and other financial penalties of owning second homes such as extra council tax.

You don’t get stamp duty back. Unless you mean that the property will increase in value.

cgt allowances are tiny now (and likely to become smaller) so cgt is a big issue if you sell

A few more details

Yes the main reason for not wanting option D is due to small children
The house isn't derelict, just decades out of date and needs a new roof
The total cost of the renovation would be 50-70k, we will have about 40k left after purchasing but I'm wary of leaving ourselves penniless and I know unexpected expenses are common with this type of project

Thanks for the advice on being a cash buyer as being favourable. DH also prefers option D as he's reluctant to lend unless completely necessary, especially with us currently being debt free. But I would feel comfortable doing so with the prospect of paying it back early after the sale of current home.

Au contraire, https://www.gov.uk/guidance/apply-for-a-refund-of-the-higher-rates-of-stamp-duty-land-tax

Ah, I meant the difference between normal and second home duty, not the full stamp duty. Maybe I wasn’t clear, it is early.

We have renovated and all the trades had waiting lists for doing work. Especially recommended builders.

Doing things piecemeal as you go along may mean that you are spending a lot of time getting quotes then waiting for people to be available.

With a full house renovation there will be unexpected extra work found as you go along. Unexpected issues not visible until you start taking out carpets/ walls/ ceilings. Having the trades available to complete the renovation over a set period meant that everything got sorted.

I'd also be sure you will have the funds available to complete the renovation work before you start (with a healthy contingency). I think it's not uncommon for people to start a big job then not be able to finish it!

@Hopelesslydevoted2Gu DH is in the industry so thankfully getting the work done isn't an issue as he has a great network. It's mainly as you mentioned, I'd like to have all the money in place beforehand

So buy it and use the money leftover to get a new roof fitted before the children move in. If you put your own house on the market it could take months to sell and complete anyway. Funds from the house sale could then be used for the internal redecoration/renovation.

You could buy it then do some of the work, move in & either get a buy to let mortgage on your other house & rent it to pay for the work? Or get a small mortgage on the new house. I wouldn't advocate for a large mortgage as you're paying out the interest longer term.