Can I buy a house without a mortgage?
If you’re financially able to buy a property outright, you can sidestep the need for a mortgage. However, for most people, getting a mortgage is the only practical way of becoming a home owner.
But are there any alternatives? Is it possible for a first-time buyer to get on the property ladder without taking out a mortgage?
Getting a mortgage is a way to buy a property without paying for the whole thing in one go. Put simply, a mortgage is a loan. It's a sum of money you borrow from a lender (like a bank or a building society) to buy a home.
A mortgage is a type of secured loan. This means that the money lent to you is ‘secured’ against the property you buy. If you aren’t able to keep up your repayments, it’s possible for the lender to repossess the house to recover the cost of the money they lent you.
A mortgage is a big financial commitment and there’s lots to think about. Our beginners guide to mortgages spells out the different types of mortgages out there, how interest rates work, and how the size of your deposit impacts the type of mortgage deal you can apply for.
Getting a mortgage is the route most commonly used by first-time buyers who want to get on the property ladder.
If you don’t want to take out a mortgage, but don’t have the full amount to buy a house outright, then your options are limited. If the loan to value is low enough, you might be able to make up the difference with an unsecured loan. However, using an unsecured loan to buy a house would be unusual and probably not wise; interest rates would be high and the repayment period short.
In England and Wales, first-time buyers can apply for a loan to help with the cost of a new-build home. In both nations plus Scotland, there are also loans available to help with the cost of building a home, or hiring someone for its construction.
There’s also a UK-wide scheme of buying through shared ownership. Find out which government-backed affordable home schemes are available.
In Wales, you can get help from the Welsh Government if you’re buying a new-build property up to the value of £300,000. If you contribute at least 5% of the property value as a deposit, the government may fund a shared equity loan for up to 20% of the cost of the home. This should help you secure a better mortgage deal. We’ll break it down into an example:
If you have a 5% deposit, and the Welsh Government provides a 20% equity loan, you’d only need to borrow 75% of the cost of the home as your mortgage – instead of 95%. That means you’ll be applying for mortgages with a loan-to-value (LTV) of 75%. The lower the LTV, the more likely it is that your mortgage deal with have a competitive interest rate. Securing a deal with a lower interest rate means your mortgage will cost less over time than it would do on a higher interest rate.
The scheme is due to run until March 2025. In England the Help to Buy scheme closed to new applicants on 31 October 2022.You can find out more about the Help to Buy - Wales scheme here.
Remember there are mortgages designed to help first-time buyers, and other ways of getting support onto the ladder. You can read more in our guide to getting family help onto the housing ladder.