Is Cash Really King? Buying a Property with Cash vs Mortgage

The Pros and Cons for International Investors

When considering purchasing a property as an investor, it’s important to first think about how you’re going to finance it. This can impact what you can afford and your return on investment, so it’s best to decide on this before starting your property search.

With many pros and cons for buying a property investment with cash or through a mortgage, there are a number of factors to consider to decide what is best for your situation and financial plans. Additionally, the process can be different depending on the kind of property being purchased, especially whether buying a new-build off-plan or an existing property.

Buying property with cash

When buying with cash, the buyer doesn’t have to go through the mortgage application process, which can make the buying process quicker. Providing the flexibility to close sooner, a cash buyer can also sometimes be viewed as a more attractive buyer.

Buying a property with cash means you won’t have to pay any interest on a loan, and you won’t have any mortgage costs. Additionally, you fully own the property and won’t have to pay monthly mortgage repayments. 

On the other hand, buying with cash ties up a lot of your money, leaving you with less cash in the bank and not able to use that money for other investments. There are also risks involved when buying a property with cash. When buying through a mortgage, the lender undertakes important checks to ensure the investment is safe and has extensive experience doing this.

Because of this, if you’re buying with cash, it’s recommended to do some of your own checks that a lender typically does, such as a valuation survey. This can help ensure you are paying the right amount for the property.

Buying property with a mortgage

When buying a property with a mortgage, you’ll need to go through the mortgage process. Many buyers and investors start by applying for an agreement in principle. And then once you have an offer accepted on a property, you’ll need to apply for an official mortgage offer. 

A mortgage is often the most affordable way to borrow money. Currently, interest rates in the UK are low, making borrowing even cheaper. And mortgage availability has increased in recent months, providing deals for a range of loan-to-value ratios.

If you are looking for an investment, buying with a mortgage allows you to leverage your cash for multiple properties or other kinds of investment. And if you’re renting out the property, the rental income could more than cover the monthly mortgage costs, which can allow you to have more cash in your pocket.

With mortgages, the buyer technically doesn’t own the entire property until the mortgage is fully paid off. Borrowers will end up paying off the amount they’ve borrowed and the accrued interest. However, many investors find buying a property through a mortgage a better option, so you don’t tie up such a large sum of money.

Can international investors get a mortgage for UK property?

Previously, it had been more difficult for international investors to get a mortgage in the UK. However, in recent years, there have been a number of new mortgage options available for international property investors. And these are relatively simple to apply for.

For some mortgage deals open to international investors, it can be more expensive, or you may need to put down a larger deposit. There are different requirements for each lender. Because of this, it’s important to assess the deals available.

As an international investor, it can be beneficial to have a UK bank account or a credit card to use whenever you’re visiting. This can help you develop a credit score in the UK, which can make it potentially easier to get a mortgage.

Steps for obtaining a mortgage agreement in principle

Obtaining an agreement in principle is useful to get before you start looking for your next property investment. An agreement in principle is when a lender agrees in principle to give you a mortgage for a certain amount. This is not final and is subject to final checks and approval of the specific property you plan to purchase. 

Before obtaining an agreement in principle, talk to a mortgage broker for advice on different products. This can help you decide what’s the best deal for your financial and personal circumstances.

To get an agreement in principle, you’ll need to apply through a lender or broker. This is sometimes done through the lender’s website. You’ll be required to provide some information to obtain an agreement, including:

  • Your name and date of birth
  • Address history from the past three years
  • Income and spending details
  • Any existing debts

At this point, you don’t usually have to provide supporting documents. However, you will need to do that once when completing your full mortgage application. If you get approved for an agreement in principle, it’s typically valid for 30 to 90 days, depending on the lender.

Having an agreement in principle in place has numerous benefits. For starters, it allows you to know how much you’ll likely be able to borrow, giving you confidence in what you can afford. Additionally, it shows estate agents you are serious, and it can even make you a more appealing buyer.

Mortgages for off-plan or new-build properties

When buying a property off-plan, the buyer reserves the property before it’s available to move in to. Because of this, it’s especially beneficial to obtain a mortgage agreement in principle. This should be done before reserving the property. 

Once the reservation fee has been paid, the buyer and developer will exchange contracts within 28 days. Once this happens, you are legally tied to purchasing the property. After reserving the property, the buyer will then need to apply for an official mortgage offer. It’s typically only valid for a set period of time. This varies between lenders but is usually valid for three or six months. 

When buying off-plan new-build properties, you may need to ask the lender to extend this or get a specific new-build mortgage, which typically is valid for longer. This is because you will have to wait for the property to be completed. Some lenders provide 12 months for all new-build applications, others will allow you to apply for a six-month extension.

Getting started

The mortgage process can seem complicated, but an experienced mortgage broker can help you along the way. At Chestertons, we have a partner mortgage broker who has access to a range of mortgage deals available to international investors for new-build and off-plan purchases.

We also have a mortgage calculator on each property listing page to give you a rough idea of the monthly repayment amounts to expect when buying a property with a mortgage.

Do you have a question about applying for a mortgage in the UK? Leave a question in the comments below, or fill out the form to book a personal consultation.

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