Buying a House with No Mortgage

If you have the ability to wait (e.g. if you live with your parents) would it be better to simply save up and then buy a house outright with cash as opposed to getting a home loan from the bank?

If you do this, you avoid paying interest, home loan application fees, etc. Plus you don't have to worry about monthly mortgage repayments, fixed versus variables interest rates, etc.

 

But are you ever going to save that much money to buy a property outright?
I bet at the first opportunity that comes along to spend money you will do it.
Also, inflation is eating into your buying power.

Are your saved money going to earn you more than the inflation rate?
It's unlikely.
With a property you only use a small portion of your own money.
You use the bank's money and time and inflation does the rest.

Yes you will pay interest but only in the beginning.
Some years later the rent will cover the mortgage repayments and at that stage it will be paying itself off.

 

This I think is an advantage. Suppose you needed the money desperately for an emergency.

When you save up, you needn't accumulate cash. E.g. you can put the money into a residential real estate investment trust, so the purchasing power will increase in line with the value of various residential properties. If you think you can do better by investing in e.g. commercial real estate or foreign real estate or infrastructure, you have that option.

 

This is a fair point, a home loan for many people is a commitment to save money they otherwise would have spent on pointless consumer items, but then again there are a lot of people out there that are good savers naturally. It all depends on what sort of person you are...

I think this is very oldschool thinking.

12 - 24 months ago conventional wisdom would have said that you would have been better off investing in property as soon as you could afford a deposit plus had the ability to service the loan, due to the fact that Australia property for the last 5 - 10 years has been appreciating at around 10% - 15% per annum whilst mortgage costs have been between 6% - 9%. Meaning that over the last 5 - 10 years just holding property was yeilding capital gains that were significantly more than the cost of holding the property, even before rental yeilds had been factored.

However the past is not indicative of the future and I would argue that the general concensus these days is that property won't appreciate in value like it used to. I personally lean towards property slightly depreciating in value over the next 2 - 3 years.

So if you were basing this decision of buying a house to live in yourself from a purely financial perspective alone I personally think building a larger deposit (to help offset fees like LMI) and living with your parents would be the prudent option for the time being.