21st November 2023

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Purchasing Prime London Property with Cash vs. Mortgage

Buying a house outright with cash is one way to avoid taking on the long-term expense of a mortgage, but there can be relative merits to both methods – so when looking to buy prime property in London, which is the better option?

As always, it depends on your personal circumstances, and you should consult a financial advisor for professional advice. In this guide, we’ll look at some of the factors that might influence your final decision.


Financial position for buying

It goes without saying that buying a house with cash is the preserve of the wealthy. Land Registry data shows that in August 2023, the average cash price paid across all London property was £551,270. Whilst higher than the rest of the UK, this can pale in comparison against high end, luxury property in the capital’s most desirable neighbourhoods.

Prime London property valuations naturally vary quite considerably based on numerous factors and scenarios, but estate agents recently valued a typical 6 bedroom Prime Central London property at around £5.5 to £6 million.

For buyers who may not have access to that level of immediate capital, buying a property in cash is simply not an option. However, if you are selling a property you already own elsewhere, the proceeds of that sale might allow you to make a cash purchase.


Financial goals and investing

Your long-term financial goals might affect your decision to buy a house with cash or mortgage. In this case, it comes down to the balance of upfront cost vs. long-term debt.

Buying a property with cash leaves you mortgage-free. No arrangement and exit fees, no monthly repayments, no interest accruing day by day. The price you pay for your property is what it costs.

In contrast, when you buy property with a mortgage, you pay more overall. Even at a relatively low interest rate, you’re likely to pay that interest over a term of 25-30 years. And if the Bank of England raises the base rate, the amount you pay will usually increase too.


Buying purpose – personal vs. portfolio

The decision to buy a house in cash or mortgage might depend on why you want to buy the house at all. If it’s going to be your primary residence, a family home for the future, a cash sale can give you confidence that nobody can take it away from you.

Buying a property with cash as part of a portfolio is not a bad idea – it means any rental income you generate will be all yours – but the considerations are much different than buying a home for your family.

For example, buying prime London property with a buy-to-let mortgage can allow you to generate rental yields that more than cover the monthly mortgage repayments, while accruing hundreds of thousands of pounds in equity.


London property market in 2023

It’s useful to understand how buying a property in cash in Prime Central London differs from the rest of England. For this, let’s return to the Land Registry House Price Index and some of the main differences between cash property purchases in England and London.

Sales Volume

In the London property market in June 2023, there were 1,035 cash transactions and 2,920 mortgage transactions, a ratio of about 1:3.

In England as a whole, there were 11,595 cash transactions and 23,541 mortgage purchases, closer to a 1:2 ratio.

Purchase Price

Nationwide, buying a house outright with cash is associated with a lower average selling price – but in the London property market the opposite is true, as cash purchases are often associated with the prime end of the market.

As a result, buying a house with cash in London costs 90% more than the nationwide cash average, whereas buying with a mortgage comes at a premium of 66% compared with the average mortgage purchase for the whole of England.

House Price Index

Finally, how have house prices changed since the Land Registry’s benchmark of January 2015? Taking that as the starting point for the data (i.e. an index of 100), figures for August 2023 show:

  • Cash purchases in England = 150.6
  • Mortgage purchases in England = 153.5
  • Cash purchases in London = 128.3
  • Mortgage purchases in London = 134.3

With prime London properties already some of the most valuable in the UK, their change in value as a percentage over the past decade has been smaller, but that can still translate into a larger cash sum due to the higher initial market value.


Benefits of both

When it comes to making your final decision to buy a house with cash or mortgage, your circumstances, financial goals and even personal preferences can all come into play.

Remember that there are benefits of both methods. Buying a house with a mortgage reduces your initial outlay and can be a good way to build a portfolio, using rental yields to cover the monthly repayments.

Buying a house with cash can be faster, with no property chain that could collapse. Just make sure that if you are a cash buyer, the vendor is also a cash seller. Being at one end of a chain, instead of a link in the middle, does not protect you against the risk of collapse.

Finally, speak to a prime London buying agent like Black Brick, who will be able to advise you on the latest market trends and the relative merits of buying London property with cash or mortgage – as well as helping you to find the perfect property at the right price.

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