Should I buy a property outright or take on a mortgage and invest my money?

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Q I have had my offer of £200,000 accepted on a property. I have also just sold my apartment for £135,000 (minus fees), and the transaction has completed. I’m temporarily living with family so have savings of £75,000, plus the sale proceeds (a total of about £205,000) to spend on my next home.

I’ve always been good at saving but never been very knowledgable on the best ways to manage my finances for the future. The sensible side of me thinks that I should buy the property outright with no mortgage. But I’m wondering if it would be a better idea to take on a mortgage and invest some of the money. I’m also wondering, if I did take out a mortgage what size of deposit I should put down?

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A The interest rates you can earn on savings – with the exception of regular savings accounts, those for children and some fixed-rate products – are pretty much always lower than mortgage rates, putting all your savings into property would seem to be a no-brainer. However, doing that would leave you without a savings cushion to rely on in times of financial crisis. So before you go ahead and sink all your savings into a new home, you may want to do a few sums to work out the minimum you would need to live on if you lost your job (or other regular income stream) and how much you would need to set aside to tide you over for six months – or a year or more if you are pessimistic about future job prospects. There’s less need to worry about having a financial cushion if your regular income is from a pension or pensions as this kind of income carries on being paid whatever your employment situation.

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As to the size of deposit you should put down, the answer is the bigger the better. However putting down a deposit of no more than 60% of a lender’s valuation of a property (not necessarily the same as the purchase price) will get you the best mortgage interest rate in all the different types of mortgages available.

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