Cash buyers often secure property at a better price, and there may be more of them coming out of the woodwork since the mortgage market got tougher, but there are negatives to be aware of, too.
For a seller, cash buyers can be a hugely attractive option for a number of reasons, which is why they often have the bargaining power to chip the price down compared with someone buying with a mortgage.
The full extent of this has been explored in an analysis by estate agency Jackson-Stops, which looks at the price difference between the average cash purchase and the average mortgaged purchase across the regions of the UK. Unsurprisingly, in every region cash buyers bagged a cheaper price for the property.
Compared with those needing to secure a mortgage, cash buyers are normally an uncomplicated option that can speed up the whole buying and selling process. Cash buyers won’t pull out due to mortgage valuation issues, either, which removes a whole lengthy step from the procedure.
What are the savings for cash buyers?
Overall, cash buyers have secured their properties for an average of 6% less than the average house price across the UK, meaning a saving for the buyer of £15,162, says Jackson-Stops. By contrast, mortgage holders have paid 3% more, or £7,596.
The north west is singled out as the region where cash buyers can make the heftiest savings, according to the figures. The study found that buyers can negotiate an average of 10% off the average property price in the region, meaning savings of £20,993.
Crispin Harris, director at Jackson-Stops’ Alderley Edge branch, commented: “Cash buyers remain very active in our market place, many of whom are empty nesters after years in the same family property, capitalising from the pandemic property boom.
“They are a very attractive buyer choice to sellers, being arguably less complicated than those that require a mortgage and likely to be stuck in a chain. In a transaction process with many moving parts from land registry to conveyancers, simplicity is sought after.
“By removing the lender from the equation, cash buyers can dramatically cut down the time it takes to complete a sale.”
Cash versus mortgage
Of course, the majority of buyers and investors purchasing property are not in a position to make a full cash purchase, particularly as house prices have continued to soar upwards over recent years.
It is generally those who purchased properties pre-1990s, says Jackson-Stops’ chairman, Nick Leeming, who are able to release the cash they have made through years of property price rises and reinvest it as cash in a new purchase, which he says is a “common situation among today’s mid-market buyers”.
While the benefits to the seller are obvious in terms of removing complications and lengthy processes to ensure a faster sale – despite the prospect of losing out on a few thousand pounds – there are both pros and cons to be aware of for the cash buyers themselves, too.
Of course, today’s mortgage market is much less appealing than it was a year ago, as interest rates have risen considerably, and this is a major factor that will encourage those who are able to do so to buy with cash, to save on interest payments. You can also save money on fees that can come with many mortgage products.
Cash buyers are more likely to secure the property they want, due to being more attractive to the seller, and there’s much less chance of it falling through as the lender is taken out of the equation.
One downside, though, is that there is a greater risk of overstretching your finances by tying up a large chunk of your money in one place. Cash buyers must ensure that their purchase doesn’t put them at risk if other costs crop up in the future.
Sometimes, it can also prove a wise investment decision to spread your assets rather than focus on one larger one. For example, you could put down a hefty deposit on a pair of properties using that cash, alongside mortgages for each, spreading your investment and potentially reducing your risk.
If you are planning on investing in property for rental, you could also reap higher yields in total across two smaller properties, compared with one larger one, so this is something to bear in mind.
When making any major financial decision, both cash buyers and borrowers are advised to seek independent advice on the best course of action based on your circumstances.
