Being able to buy an investment property with cash rather than needing a mortgage puts you at a huge advantage in a number of ways; the fact that you won’t have to pay extra for mortgage-related expenses (such as the valuation) and will be ‘ready to go’ from the vendor’s perspective are among these.
Similarly you won’t have to spend decades paying off the principal and interest related to the mortgage.
It’s true to say that you’ll also be free not to spend the money on the compulsory checks that a lender would require of you, such as conveyancing searches. But before you decide to economise on these you should think carefully as to whether this is a good bet in the long run – these checks clearly have merit in establishing the soundness of a property purchase.
When you’re looking for a conveyancing quote you should consider that you’ll always be better off instructing an experienced conveyancing solicitor. They’ll know the ins and outs of cash purchases and investment purchases. Their experience tells when it comes to spotting any major issues, such as with the title of the property, but they’ll need to have good information, some of which they won’t have if you skimp on some of the checks referred to.
Banks are understandably cautious when it comes to lending money and you should consider that if they wouldn’t take certain risks regarding an investment perhaps you shouldn’t either, in the same way.
In a similar way, your conveyancing solicitor or licensed conveyancer always looks to protect your interests by examining as much information the property you’re proposing to buy before giving you their all-important report on title, one of the key parts of any conveyancing process and which sets you up for exchange of contracts.
It’s not legally compulsory to get a RICS home buyers survey although any conveyancer will advise you to do so and they’ll benefit from the subsequent surveyor’s report, particularly if property defects are found, in that they can then make focused enquiries prior to creating your report on title.
In sum, you might save a few hundred pounds in the short term by cutting corners…but if a serious property or title defect is overlooked, it might end up costing you many £1000s to £10,000s to rectify further down the line.
Also, you should think about what might happen when you come to sell. Any mortgage buyer will themselves have to carry out the checks stipulated by their lender. If these uncover an issue which makes your home very difficult to sell, then you’ll only find out about it at this point and via your prospective buyer, putting you in an undesirable position.
1 Home Buyers Survey
Anyone buying with a mortgage has to get a mortgage valuation survey carried out. This isn’t a detailed home buyers’ survey but it does at least briefly examine the condition of the property, so obvious issues might be spotted.
All home buyers are advised to get their own home buyers survey, which is much more detailed than a mortgage valuation survey and the surveyor is purely working for you rather than your lender. Your surveyor has years of experience and is highly likely to spot any serious problems a home has.
Most of the time, a surveyor carrying out a valuation for a lender will, at most, only cursorily inspect the actual property, perhaps taking less than 5 minutes. A home buyers survey inspection, in contrast, will normally be at least 2 hours long and involve the surveyor visually inspecting all accessible areas in and around the property, including the garden, any outbuildings (garages etc.), the drains, all the interior including the loft space if accessible and the roof.
If you don’t get a survey and a defect such as subsidence or Japanese Knotweed is missed, it might end up costing you tens of £1,000s to rectify further down the line. A survey might cost up to £1,000 or so at most and if the surveyor misses a defect, they are indemnified so you’ll be compensated for any subsequent remedial costs.
Additionally, when you come to sell your property, you should consider not only that any buyers who are using a mortgage will have to get at least a mortgage valuation survey, as stated, and may also get a home buyers survey. In this sense, forewarned is very much forearmed.
If you’ve carried out a home buyers’ survey yourself, you’ve done as much as you can to avoid nasty surprises which might end up costing you £1000s and make you aware of issues which might prevent you selling up further down the line.
2 Property Searches
Mortgage lenders require those buying with mortgages to buy a minimum of four property searches, the most important of which is the Local Authority Search.
These searches reveal highly important information about the land a property is located on and in the case of the Local Authority Search, you find out about local planning permissions granted and building works applied for – you might find out that you’ll have a solar farm built at the bottom of your back garden in a couple of years, for example – and things like tree preservation and smoke control orders might affect your quality of life in your home.
You should at the very least get a Local Authority Search therefore for your own peace of mind. This also counts for when you might want to sell up: anyone buying with a mortgage will have to book the searches so once again, you’ll benefit from being briefed on salient information.
3 Other lender checks
Mortgage lenders are required to carry out many other checks – these are set down in the Council for Mortgage Lenders’ Handbook – and you should try to carry out these yourself.
These checks include: finding out if the property was sold less than 6 months before, which might indicate a serious issue; finding out if a property is concrete built; checking to see if there’s a formal management company in place (if leasehold) and whether, if the property is a new build, there is a proper new build warranty in place, such as from NHBC or Zurich Insurance.
Overall, you are well advised to conduct your cash purchase in a similar way to if you were buying with a mortgage and carry out the same exhaustive checks. If you don’t you should remember that in England and Wales, properties are sold caveat emptor, i.e. ‘let the buyer beware’, which means you can’t sue your seller after you’ve taken up ownership.
The best advice overall for buying any property is always to protect your investment as much as you can, given the sheer size of the finance involved and to remember that you can save yourself potentially a great deal of headache – and heartache – if you carry out the same checks that any mortgage lender would. The checks referred to might cost you perhaps £1,500 at most – but might save you £10,000s.
Katie is a finance specialist with one of the biggest firms in London. From savings to investments, there’s nothing she can’t advise on and she’s here to help spread the word and help you on your way to financial freedom.