Buying a property: cash vs. mortgage

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From a young age, many of us are taught that debt is something to be avoided.  However, is purchasing a property in cash always a better option than borrowing the money from a bank? We take a look at the pros and cons of each in our latest blog post.

Pros for buying in cash

One of the biggest advantages of buying a property in cash is that the transaction process is much faster as there is no need to apply for a loan or mortgage. In addition, the purchase costs will be lower as you will not need to pay arrangement fees or mortgage registration tax.

Buying in cash doesn’t affect your monthly affordability and there is no risk of your property being repossessed if you run into cash flow problems down the line.

Pros for paying with a mortgage:

The most obvious disadvantage of buying in cash is that it leaves you with a massive hole in your pocket. This can affect your liquidity as a sizeable chunk of your savings will be locked up in brick and mortar. While equity release is an option in other parts of the world if you need to improve your cash flow, it’s very difficult to release equity in France. Taking out a mortgage will allow you to keep some money aside for rainy days and emergencies.

Contrary to popular belief, taking out a mortgage can also help you save money. For example, if the property is rented out, it is possible to offset the interest paid against any rental income. In addition, with private banks offering mortgages of up to 100% LTV, you may also be able to completely avoid paying any property wealth tax if the amount of money you personally put forward is less than 1.3m.

While one of the biggest drawbacks of a mortgage is that you will have to pay additional costs on top of the value of the property (like interest and arrangement fees), low interest rates in France mean that these costs can often be cancelled out by investing money into a financial portfolio. Indeed, many ‘safe’ products have a return which can beat the cost of the mortgage. When investing, always seek advice from a Financial Adviser.

The monthly mortgage repayment will stay the same if you choose a fixed rate. However, inflation means the real value of the mortgage repayment in 10 years will be lower than was at the start. 

Finally, a mortgage allows you to put some money aside for rainy days!