In a bid to ensure their property sale goes through, more sellers are favouring cash buyers over mortgaged ones – and this often comes with a good deal for the buyer.
It is a well-known fact that cash buyers can come with fewer complications and a reduced chance of fall-through than mortgaged buyers. As a result, sellers will often be happy to accept a lower offer from someone offering cash, as it speeds up the process for both parties.
Over the past couple of years, mortgage rates have increased and so has the level of uncertainty when it comes to affordability in the mortgage market. While buyer appetite is still strong, transaction levels have been down and much of this is down to this uncertainty.
New research from Octane Capital has revealed that cash buyers have been receiving even greater discounts than usual on their property purchases since mortgage rates began to climb in December 2021. At that time, its research found those buying with cash paid an average of 8.5% less than mortgaged buyers.
In numbers, this meant that a non-mortgaged buyer was paying an average of £255,616 for a property at that time, while someone using a mortgage to secure the purchase was paying an average of £279,220.
By August 2023, when the Bank of England base rate was frozen at 5.25% (having climbed from a record-low of 0.1% in 2021), sellers were accepting offers from cash buyers at 9.4% lower than for mortgaged buyers. This meant borrowers were paying an average of £301,932 for a property, compared with £273,685 for a cash buyer.
Today, Octane Capital’s data shows that this has increased even further, with a 9.7% discount for cash buyers compared to mortgaged ones; which equates to £268,346 versus £297,185. Along with the savings you get from not having to pay mortgage fees, and the interest you save, this makes buying with cash even more lucrative for those who can.
Best discounts for cash buyers in the north
For buyers or investors with cash to spare, the best discounts can be found in the north of England, where property prices are also the lowest on average.
In the north east, a straightforward cash purchase of a property can be completed with a huge 14.6% discount on average. In the north west, the average cash buyer can get 14.1% wiped off the price of a property compared with a mortgaged buyer.
The West Midlands is also a strong location for those looking to invest with cash, with average discounts of 8%.
However, London is a law unto itself when it comes to buying methods. In the capital, cash buyers in December 2021 were actually paying 5.1% more than borrowers, while today that figure is 3.2%. This is likely due to the fact that prime central London attracts a large proportion of cash buyers, and this obviously comes with heftier price tags than the average property.
Sellers are willing to stretch
CEO of Octane Capital, Jonathan Samuels, commented: “Sellers will always offer discounts to cash buyers as they provide a swifter, more certain sale without the potential pitfalls that can come from those purchasing with the help of a mortgage.
“However, in recent years the extent to which sellers are willing to stretch for a cash buyer has only increased and this has been largely due to the uncertain mortgage market conditions spurred by higher interest rates.
“With the base rate increasing consistently between December 2001 and August 2023, many mortgage-backed buyers were simply finding that their borrowing eligibility was changing from one day to the next, leading to an increase in withdrawn or amended offers, with many more opting to put their plans to purchase on hold completely.
“As a result, sellers have been more inclined to slash their price expectations even further for a cash buyer, as the benefit of their far stronger market position far outweighs the discounted price required to secure them.”
There are numerous benefits to being a cash buyer, one main one being that you can complete a transaction much more quickly – and of course secure a better price in the process. The fact you are chain-free is a huge draw for sellers, and there is no uncertainty over the amount you have to spend.
For investors, aside from the fact that you own your property outright and will not be paying interest on any borrowing, you could also have access to a wider range of properties, as renovation projects or other unusual properties are sometimes listed as ‘cash buyer only’.
