UK property profit

Cash buyers can secure huge discounts on property, but what are the pros and cons?

Sellers are often willing to drop the price for cash buyers, but there are a number of things to consider to decide whether this is the best way to buy property.

Buyers who are able to secure a property without taking out a mortgage, meaning they are able to proceed more quickly with the sale, are often more appealing to vendors as they offer a greater level of certainty on both sides.

Lenders have numerous criteria to satisfy; for buy-to-let mortgages, rental income must normally be at least 125% of the loan amount. While most mortgaged buyers have done the maths and will be able to proceed without issues, some end up having to pull out if things don’t stack up, and this is a major reason why a seller may be more inclined to go with a cash buyer.

The speed of a cash purchase also comes from the fact that it’s chain-free, and chain-free buyers are often much more desireable to sellers, whether or not they’re buying with a mortgage. This is because there’s no need to wait for the sale of another property – the buyer is free to progress quickly.

For these reasons, cash buyers can often negotiate harder when it comes to the property price, because they are in an advantageous position to a buyer who’s got a property to sell, or needs to secure a mortgage in order to proceed.

With interest rates having increased since 2022 – although they have come down slightly this year – cash buyers have become a more significant part of the market. Those who are able to buy without a mortgage can make greater savings right now through not having to pay the higher borrowing costs.

Greater discounts for cash buyers

The increased volume of cash buyers could be part of the reason that they are securing, on average, bigger discounts on properties at the moment. Sellers may also have found that more sales have been falling through due to rising mortgage costs, meaning they are even more likely to want to sell to someone who isn’t relying on borrowing.

New research from Lomond has analysed properties for sale across England that stipulate they are looking for cash buyers only, which tends to be when the vendor is looking for a quick sale.

The study found that the average asking price for cash-only properties came in at £257,513, which is £52,059 (or 17%) cheaper than the wider average house price. This is a significant discount for the buyer, but regionally, the gap can vary greatly.

Buyers in Yorkshire and the Humber can secure the biggest average discount (as a percentage of the property price) than anywhere in the country, according to Lomond. Here, ‘cash buyer only’ homes came in at a huge 25% cheaper than the average property price in the region. This means buyers can pay an average of £54,043 less if they can stump up the cash.

The south east offers a slightly smaller discount, at 22%, but due to the extremely high property prices in this part of the country, this means properties can be an average of £85,979 if you’re buying with cash.

Next was the West Midlands, where mortgage-free buyers are able to get an average of 20% knocked off the asking price compared with the wider market.

In London, the gap is only an average of 8%, so buyers get the least benefit in the capital by buying with cash.

Things to consider

If you’re considering making an investment in cash, you can make great savings through getting a cheaper deal, as well as avoiding costly mortgage fees and paying interest on your borrowing.

However, there are a number of things to take into account to decide whether it is the best option.

  1. Why is the vendor looking for ‘cash buyers only’? It could be simply that they want a quick sale due to their personal circumstances. However, it could also be that the property is unmortgageable, such as if it is of non-standard construction, has structural issues, or has a short lease. This can affect the future value of the property.
  2. Losing liquid assets: It is important to consider whether you are comfortable tying up a large sum of cash in a property, meaning losing liquidity. If you need to access these funds down the line, this could mean having to sell the property, or borrow against it.
  3. Diversifying your portfolio: If you’re a property investor, rather than buy one property with cash, it may be more profitable to split your funds across more than one property, taking out borrowing on each, which can mean a greater total return on investment.

All potential cash buyers should get advice from an expert before proceeding, to make sure that it is the best investment method for them.

If you’re looking for your next property investment opportunity, whether you’re a cash buyer or are investing with a mortgage, get in touch with BuyAssociation today, or browse some of our current opportunities here. 

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