Buying a house without a mortgage

Can I buy a house without mortgage?

There are various ways of buying a house without a mortgage, such as:

• Buying with cash.
• A gift from parents.
• A private loan from friends or family.
• A director loan from your company.
• Gradual home ownership (similar to shared ownership).

Being a cash buyer is the simplest because you use your own money. Additional costs and risks arise when sourcing finance from a private lender or an affordable purchase scheme. We explain each scenario step by step.

Why would you buy a house without a mortgage?

For some buyers, buying with a mortgage is not an option because:

• Your credit rating is poor (CCJs, bankruptcy, payday loans, too much credit). Read more - How to get a mortgage when you have bad credit
• You don't have a large enough salary.
• You don't have a deposit. Read more - Buying a house with no deposit

How to buy a house without a mortgage

• 1

  Buying with cash

You are known as a cash buyer who can buy with someone else or on your own. The conveyancing process is simplified as you don't need to get a mortgage offer, but you do need to prove the source of your cash.

How do I show proof of funds to buy a house with cash? Your solicitor requires you to prove the source of the money you are using to buy the property. This normally comprises 6-12 months' bank statements and supporting evidence of where the money came from.

Can I use cash as proof of funds? While the word cash is used, you cannot use physical cash or Cryptocurrency to buy a house in England or Wales. Read more - How to prove source of funds.

Can I use a gift without a mortgage? You can use a gift from your parents. Another family member would rarely gift a large sum of money without expecting it to be repaid. Even though you're buying without a mortgage, your solicitor needs your parents to sign a Gifted Deposit Letter. Download a Gifted Deposit Letter.

• 2

  A private loan from friends or family

Buying with a private loan means you don't have a mortgage, but you owe money to someone. The process requires:

• Proof of ID
• Source of funds
• Loan Agreement

You'll need a loan agreement to formalise the term, interest and other clauses around how the loan is to be repaid. Read more - How to draft a loan agreement when buying a house?

• 3

  A director loan from your company

You can withdraw a company loan as a director. If over £10,000, you need a board meeting to approve the withdrawal.

The director's loan must be repaid within 9 months and 1 day of the financial year end, or else tax is payable. If the loan is not repaid in that time, the company will have to pay 33.75% of the balance outstanding along with the Corporation Tax charge for that year.

• 4

  Gradual home ownership

A gradual home ownership scheme allows you to buy a house with a company, and over time, you can buy more shares. Your deposit starts from 5%, and you pay rent on the part you don't own, so it is similar to a mortgage; you still have to pay.

The companies offering this type of home buying without a mortgage are Wayhome and Heylo Housing.

What are the risks of gradual home ownership? Whilst they are mortgage free, this doesn't mean they are free to use. The companies charge for the rent, and you may lose your home if you have financial difficulties. You must read the terms and conditions very carefully..