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Cash is king for home buyers

Home buyers who don't need a mortgage are either stinking rich people buying luxury pads, or foreigners working or investing over here. Right? Not quite. Research suggests the typical cash buyer is rather more "ordinary"; someone looking to move to a smaller property and often trading down in order to to release cash, for example.

The research, published by the Council of Mortgage Lenders, finds that the average purchase price for a cash transaction was pounds 65,700 - 7 per cent or pounds 5,000 less than for those buying with mortgages. A majority of purchases by the over-55s are for cash.

Overall, 18 per cent of property purchases in the year to June were cash- funded, but very few of these are for properties bought by people not yet in their 40s.

So the young cash buyer remains still a rarity, but it is now not all that unusual for first-time buyers to have significant deposits to part- fund purchases. The best-value mortgage deals - in terms of rate as well as not having to pay a "Mig" mortgage indemnity premium of hundreds of pounds or more - are often reserved for home buyers looking to borrow no more than 70 or 75 per cent of the price of their new property.

With five-year fixed-rate mortgage rates now as low as 6.5 per cent - cheaper than they have been for a long time - most mortgage experts favour fixed-rate deals over those offering a discount against standard variable rates. They also recommend looking for deals that minimise the penalties for switching at the end of the fixed-rate period.

Philip Cartwright, director at London & Country Mortgages, a Bath-based mortgage broker, recommends a two-year fixed-rate deal for 6.55 per cent from Nationwide building society. After the two-year period you switch to the society's standard variable rate (presently 8.1 per cent) but, importantly, there are no charges for switching to another deal or lender. Nationwide charges a pounds 295 "reservation fee" for the mortgage and, on a pounds 100,000 mortgage, a pounds 175 valuation fee. Mr Cartwright also likes a 6.99 per cent three-year fixed-rate deal from the Epsom-based National Counties building society. Again there is no lock-in after the three years.

For buyers who anticipate wanting to vary their monthly repayments and pay off chunks of their loan, he also likes a "flexible mortgage" from Stroud & Swindon Direct (0800 371824).

The Independent and Independent on Sunday have a free 27-page Guide to Mortgages. Sponsored by Barclays Mortgages, readers can get a copy by calling 0800 585 691 or completing the coupon on the right.