How advantageous is it to buy cash rather than with a mortgage

Mr Hindley

I'm gearing up to buy, and hard not to be depressed by all the horror stories of people being outbid in the current market. I'm fortunate enough to be in a situation where I could buy a small flat for cash, which would do me for a few years in the hope that buying a house, with a mortgage, would be easier a little bit down the line i.e. less competitive market. I'm at a stage of my life where by now I would have really hoped to have been in a house - but I'm OK with living in a flat a few years' more, if there's a strong financial advantage in doing so i.e. the negotiating premium of buying cash is sizeable and reduces the risk of wildly overpaying while the market is overheated. Against that, if prices continue to shoot up, a more expensive house (part-funded by mortgage) will gain more value than a cheaper flat.

No-one has a crystal ball, but interested in peoples' thoughts on how much of an advantage comes with buying outright? And apologies, I sincerely appreciate that not everyone is as fortunate - it's taken me a long time to get to this stage, fwiw..!

Skyrimaddict

Hi,

In terms of actual buying, you in a great spot as a cash buyer will in many cases be more attractive than a mortgage buyer, as there is a lot of holds ups with a mortgage.

Are you asking though if you're better off buying something small now, or waiting?

I don't have a definite answer, but I do think the housing market will stabilise again in 1-2 years or less once the supply ramps up, plus we get over the post covid work from anywhere bubble. My concern would be you would pay a premium now for a flat and then not sell it again for the same value, but if your renting somewhere it would be cash saved, so depends on what you are really looking at?

C14N

At the same price, in my experience, you're at a big advantage if you're buying with cash. I have been beaten several times during bidding by cash buyers. Even as a first-time buyer (meaning I didn't have to wait for any kind of chain) I found cash buyers given preferential treatment, to the point where sellers would give 5-figure discounts to someone relative to what we offered because they were cash buyers (or even just people who had a larger portion of the purchase in cash).

That said, if you are also a first-time buyer, you could definitely consider your options with getting a mortgage. It's definitely not a black mark against you to be using a mortgage, I'd guess most individual buyers still are doing that. I'm assuming you would have a lot to play with if you have enough cash to buy an apartment outright, and could probably get something you'd be happy with long-term if you decided to go that route. If you look at what you could borrow and find you could, I'd say that would be the option I'd take myself. When you're buying its always preferable to have a place you'd like for longer if you can get it.

javaboy

You'll be more attractive as a cash buyer for sure but in a seller's market when there are likely to be plenty of approved buyers especially in the "small flat for cash" price range, I wouldn't bet on being given any huge discount. It's not like you're going to go sale agreed and close within a week anyway, even as a cash buyer. There will be all the usual conveyancing steps. You could be the first link in a chain and find the timelines are going to be dragged out a bit either way, making you not much more attractive as a buyer than an FTB with AIP who's bidding a few grand more.

If you do get even a small mortgage to get a bigger place, you'll still be able to overpay (depending on your fixed term and lender's rules etc.) at some stage. You could get a really favourable rate if you keep your LTV low too. If you've an LTV of 50-60%, you're not likely to go into negative equity any time soon and as you mentioned, you'll probably enjoy greater gains on a more expensive place if prices do continue to rise.

One thing in favour of paying cash now is that you remain an FTB as far as the Central Bank rules are concerned so you could borrow up to 90% of your next property.

Tails142

Yes also saw cash buyers getting preferential treatment to us as first time buyers even when we were bidding five figures more. Didn't make any sense to me, especially in a rising market.

I wouldn't necessary base my decision as to buy a flat in cash or a house with a mortgage on this factor alone though.

C14N

https://www.boards.ie/discussion/comment/118103381#Comment_118103381

Presumably the rules of a 10% deposit aren't really that relevant though to someone who has enough cash saved up to buy an apartment outright. Don't know OPs details but I assume their borrowing would be limited instead by 3.5x salary, and they probably have 20% of that already.

Mr Hindley

Thanks, all, for the input, very much appreciated - all helpful, and chimes with a lot of the thoughts bouncing around in my head. I'm currently renting, having just moved back to Ireland last year, and as someone who's owned their own home in the past, I'm keen to get back on the propery ladder sooner rather than later rather than waste money on rent. If I'm honest, I think part of the reason I'm considering settling for something smaller for cash is just to cut back what sounds like a huge amount of hassle and heartache with the bidding and conveyancing process in the current market - but that's not a good enough reason, so I'll probably bite the bullet, go the mortgage route, and get somewhere I'd be happier staying long-term.

In terms of borrowing limits - yes, given I'm in my late 40s, there's a limit on how much I'd actually want to borrow, which will be less than the maximum the banks would give me so that's less of a concern in this case.

3DataModem

"In terms of borrowing limits - yes, given I'm in my late 40s, there's a limit on how much I'd actually want to borrow, which will be less than the maximum the banks would give me so that's less of a concern in this case."

Good for you. Good luck.

brownej

From a buying perspective as others have said cash buyer can be given preferential treatment.

From a money and investment point of view, remember a mortgage is the cheapest money that you can get. For value for money, getting the mortgage and investing the lump sum may give a better overall return.

*value of investments may fall as well as rise......

redsheeps

Sorry if I've taken you up wrong with this, but from your own perspective, buying with cash for me is king. Think of the cost of the mortgage over the lifetime of that mortgage.

Say you go the mortgage route and the apartment is €300k. You take mortgage out of €270k as you'll need 10% deposit. Over a 30 year repayment with 2.9% interest rate (currently from AIB), that mortgage will cost you €132,608. If you buy that house for cash now you are arguably saving that much money. Edit: Just noticed you said in your 40s so likely won't be as much of a saving!

If you pay cash and prices go up, you're quids in. Obviously it depends on how much prices continue to go up but you could be earning equity at a rate beyond the interest you'd make on a savings account. Just a very quick gawk at bonkers savings accounts and €300k lump sum deposit will get you 0.1% interest rates... House prices go up 1% over a year and you've got that equity to potentially pull out.

If you buy now and prices drop, they'd have to drop approximately 50% before you've technically lost money. €300k mortgage paid with cash = saving of €132k because you're not paying any interest on a mortgage. If the house drops to a value of €150,000, because you paid cash then you're technically only out €18k but that's over 30 years. Obviously that's a hypothetical saving and I think I have that right 😬

pleh

Its cheaper as you can negotiate a lower price, due to cash buyers being preferred as well as the interest you would save paying for on a mortgage .

Save money on other stuff. With cash you dont have to have home insurance set up, this can be a nightmare for people in a designated flood zone, who just cannot get it, or at the least, very expensive and still doesn't even include flooding. U can buy a property and sort out insurance later no pressure.

Also mortgage protection/life insurance, and this can be expensive depending on medical history. Don't need that with cash.

And no bank valuation limitations either, so a bit of freedom there too.

Should be quicker to get the deal done so less likely to get gazumped.

You would feel more secure by owning outright, a nice feeling.

C14N

https://www.boards.ie/discussion/comment/118119473#Comment_118119473

This would only make sense if the only place to put your money was a super low-interest savings account. In general, most financial advisors would recommend investing in a low-risk investment account which easily earns more than 3% interest over the long run (and if OP has enough cash to buy an apartment outright, they will probably pay less interest than that due to a low loan-to-value ratio). €132k is not a huge amount of money over the length of 30 years.

Prices dropping is the main risk, because if you are in negative equity then moving out becomes harder to do, but even then they tend to recover eventually (people who bought at the peak before the last crash are generally back in good standing now) and if OP is using the extra mortgage money to buy the home they plan to live in for the rest of their life, then that won't really be a major factor either.