Most people in the United Kingdom use a mortgage to buy a house.
This is because the property’s full value is too expensive to afford.
Sometimes, you’ll see a person buy a house using cash.
Is this how rich people buy property? If so, why?
What makes someone a cash buyer?
People usually buy a house in cash because they have the funds.
The common explanations for this are one-off significant events that give them huge sums of money.
Perhaps they’ve recently sold a house and are downsizing. They could even be upsizing but relocating to a more affordable area.
Or maybe they’ve inherited property or cashed out their share of ownership in a business.
It’s rare for someone to be a cash buyer in their early life stages.
It’s often after many years of building up wealth that it becomes a viable option. (There are exceptions, though, of course.)
Does buying a house in cash always mean that someone’s rich?
Every person has a different definition of ‘rich’. And it largely depends on the circumstances.
The barometer for wealth is usually a person’s net worth.
For example, having a net worth of over £1 million makes someone a ‘millionaire’.
Living in a £1 million house doesn’t necessarily mean you’re a millionaire, and vice versa.
Buying a £200,000 property in cash means that you’ve got this much money available to use.
But if these are the only assets the person owns, their net worth wouldn’t put them above the inheritance tax threshold.
In this case, they may not be considered ‘rich’.
Reasons a rich person will choose to buy a house in cash
Buying in cash brings less stress. Cash buyers can save time and energy on the mortgage application process.
And they don’t have to make monthly repayments or interest.
Buying in cash allows cash buyers to purchase a property that a mortgage company won’t lend on.
This includes houses considered ‘uninhabitable’, with a short lease or with a pest infestation.
It enables them to complete sales quicker and with more certainty than regular buyers, which means buyers will favour selling to them.
Lastly, you may struggle to get a mortgage from a lender if you’re a pensioner because you’re expected to pass away before it expires.
In this case, cash may be your only option.
Reasons a rich person won’t choose to buy a house in cash
Just because a person can afford a house in cash, doesn’t mean they will.
They may feel that their money is better used elsewhere. The money could represent four separate deposits on four separate houses.
Renting these out may increase their short-term income and give them equity in four properties rather than just one.
There are many alternatives to investing in property. Putting it in a savings account gives them monthly interest earnings, for example.
Generally, someone who can pay in cash – but doesn’t – considers their money better spent in several ways.
Should I buy a house in cash?
This depends largely on your personal goals, and your financial situation.
Reducing stress may be your priority if you’re in the later years of your life.
Especially if you don’t want to make any more investments. Buying in cash can be ideal for this.
On the other hand, if you still want to make money, then increasing risk may not be seen as a problem.
You could thus take out a mortgage and use the rest of your money in other areas.
You should speak to a life-centred financial adviser. Your decision isn’t just a maths equation.
Your aspirations, risk tolerance, age, and the number of people affected by your decision must all come into play.
