Are you looking to buy a house without a mortgage? You've got options. Find out more in our explainer article.
Are you looking to buy a house without a mortgage? You've got options. Find out more in our explainer article.
When it comes to buying a house, mortgages are the norm. As a society, we mentally file them away under "necessary evil" – after all, nobody wants to be paying back a lender for over two decades.
The truth is that, for most of us, mortgages are the only financially viable option. Nevertheless, they're not the only way to land a property.
In this article, we look at seven ways you can buy a house without a mortgage.
1. Pay cash
Paying cash is route one for a person seeking a mortgage-free life. Naturally, it's only possible if you have the requisite cash to hand, whether through savings, inheritance or a combination of the two.
The financial benefits are plain to see. No monthly payments. No interest. Fewer closing costs. And above all, no debts.
What's more, cash buyers get to jump to the front of the queue in the event of a bidding war. This is because the seller knows that there's no chance of you backing out of the purchase because you can't get a loan. In their eyes, you're a safe pair of hands.
The drawback to cash buying is also financial. Property can be a strong asset, but it's not a liquid one. If you've splashed all your cash on buying a property outright, you may encounter cash flow problems down the line. The likelihood of this is something you should establish with a financial advisor before committing to a cash purchase.
2. Get a peer-to-peer mortgage loan
If your credit score is too low to secure a loan from a bank, you could consider seeking one from a private lender. This could be either a loan company or an individual you know and trust.
A private loan company is likely to be less cautious than a bank. This means that you stand a better chance of getting a loan – but also that the interest is likely to be higher.
With an individual lender, however, you can negotiate your terms. This can be especially effective if a family member or friend is willing and able to lend you the money.
It's important to note that borrowing from a family member or friend is still a business deal and as such requires a written contract. It's always worth seeking financial advice before striking a deal of this kind.
3. Explore owner financing
Owner financing is when the homeowner becomes the mortgage lender. The current owner lends you the money you need to buy the property. You then pay them back in instalments.
This isn't an especially common form of property sale and many owners would not consider it as an option. However, it can be a possibility if the seller has sold off their mortgage in full and doesn't want your money straight away – and it can suit buyers who are just shy of the cash price.
An owner who finances your purchase will expect you to get a mortgage in the short- to mid-term, so you may still end up needing to get a traditional loan.
4. Rent to own
Rent to own (or rent to buy) is an arrangement you make with a house owner. For the first two years, the arrangement is just like renting from a landlord. But after the first two years, you can declare your intention to purchase the property.
Once this declaration has been made, you get back 25% of the rent you've paid so far and net half the value that the property has accrued since your moving-in date.
These funds are then used to pay your deposit. If you also have savings, you can pool your resources and buy the house without a mortgage.
This arrangement can benefit buyers who need to boost their credit score and want to work towards buying a house without throwing money away on rent.
5. Borrow from a retirement fund
If you've got a lot of money in a retirement fund, you can borrow from yourself to fund a house purchase. This is another way to avoid monthly payments and the interest that they accumulate.
However, your withdrawal could be taxed. In some situations, this could cancel out the perceived cost benefits. So, before you borrow from your retirement fund, make sure you seek financial advice.
6. Find a fixer-upper
If a normal house is beyond your cash budget, you could look for a fixer-upper. Naturally, this will come with long-term time and money commitments – but it may let you get the property without first getting a mortgage.
7. Get a Lifetime ISA
A Lifetime ISA is a type of savings account backed by the British government. It's available to British residents aged between 18 and 40.
You can put up to £4,000 a year into your Lifetime ISA until the age of 50. The government will add a 25% bonus – up to a maximum of £1,000 a year.
At a time when interest rates are low, a Lifetime ISA can help you to save towards buying a house with cash.
Further considerations
If your aim is to buy a house without a mortgage, you need to exercise caution. Arrangements that seem attractive on paper can come with hidden costs and complications. For this reason, it's essential to seek sound financial advice before signing any paperwork.
Similarly, expert legal advice can be indispensable in these circumstances. When buying with cash or pursuing one of these other options, the conveyancing process is simplified – but it's still there.
When buying with cash, you don't need a conveyancing solicitor to carry out checks for the lender. However, you still need the property's quality and value to be assessed to protect your investment should you sell it down the line.
Working with a property lawyer is all about protection. It's important to get the advice you need before putting pen to paper.
Are you looking for a
conveyancing solicitor to help you buy a home with or without a mortgage?
Get in touch with Milners to book a free, no-obligation consultation.
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