The UK property market has been full of surprises lately, and it means the debate about cash over mortgage is back on everyone’s lips. With prices levelling and interest rates rising, do cash buyers have an advantage over borrowers in the current housing market? Or does it make financial sense to borrow the capital for your home and use your cash more wisely somewhere else?
Interest rates
Unfortunately for borrowers, interest rates in the UK have risen from a low of 0.025% at the start of 2022, to a ten year high of 3.5% by the end of the year. These may sound like relatively small amounts, but they can have a huge effect on the sums that mortgage payers have to cover each month. Even those with relatively small mortgages of less than 50K were paying over £100 more by the end of the year and for those with larger mortgages, the increases were in the hundreds, or even thousands, every month. Worse still, rates are set to continue to increase further.
So is cash better in the current market?
Technically, one could argue that cash is always a better option, Cash buying keeps costs low, which means more disposable income for homeowners and more rental income for landlords. However, when interest rates are low, it can make more financial sense to borrow, leaving you with better cash flow and more capital. With rates rising so sharply, it’s certainly an advantageous market for those who are able to buy a property with cash rather than by borrowing with a mortgage.
What else do I need to think about?
As well as choosing between cash or borrowing for your next property purchase, you also need to think carefully about how much you are willing to spend. House prices rose sharply over the past decade, but this growth is levelling off, with many forecasters expecting prices to drop. No one wants to have bought their house for a higher price than necessary, so think carefully about the offer you make, taking into consideration what the property might be worth in a year or two,
With the cost of living affecting the fluidity of everyone’s bank accounts, buyers will also be looking to make savings wherever possible. That means finding the lowest possible commission rates and conveyancing quotes. You may wish to review conveyancing costs at specialists such as:https://www.samconveyancing.co.uk/conveyancing-quote.
There certainly is an argument to say that cash buyers have an advantage over borrowers at the current time, with many households struggling to make mortgage payments. Having said that, if you can lock in a decent, low fixed mortgage rate for the next five years, you’ll be protected from any further rises. In today’s market, both cash buyers and those who are able to get a mortgage approved, have a huge advantage over the many families who are unable to do either.