Yahoo Finance How to capitalise on the biggest opportunity for cash buyers in a decade
Cash buyers have the biggest advantage over mortgage borrowers in a decade as sellers forgo tens of thousands of pounds in exchange for a quick sale.
Interest rates have fallen to their lowest in more than three months, but buyers relying on bank loans are still being treated with caution by sellers following turmoil in the mortgage market last year.
Higher borrowing costs has also dampened demand amongst mortgage borrowers and house prices, which have already fallen, are forecast to drop even further in 2023. Changing winds have given cash buyers the biggest opportunity to negotiate in 10 years.
A typical cash buyer this month had an offer accepted at 98pc of a property’s asking price, compared with 99.6pc secured by buyers relying on a mortgage. The 1.6 percentage point difference between the two is the biggest advantage held by cash buyers since December 2012, according to estate agency Hamptons.
In January 2021, cash buyers had a marginal upper hand over borrowers, agreeing an average sale at 100.4pc of an asking price compared with 100.7pc secured by buyers with a mortgage – an advantage more than five times smaller than today.
Joseph Bate, of estate agency Johns&Co, said: “We have seen an incredible shift in the number of cash buyers now active in the market compared to last year.
“This time last year, none of our sales had gone to cash buyers, fast forward to now and already this month cash buyers have accounted for 60pc of our sales.”
Mr Bate said January was typically when first-time buyers began their search in a new year, but the market was instead dominated by wealthier buyers. “For there to be such a high proportion of cash buyers this month is highly unusual,” he added.
The share of cash buyers has risen to its highest level in eight years, accounting for almost 40pc of sales nationwide so far in January, according to Hamptons. Cash sales have increased every month since August last year, coinciding with huge increases in mortgage costs.
The average two-year fixed rate mortgage was priced at 3.95pc at the beginning of August and rose to a peak of 6.65pc in the middle of October as financial markets reeled in the wake of the chaotic mini-Budget. Rates have steadily dropped since, but still remain inflated at an average two-year fix of 5.51pc, according to analyst Moneyfacts.
Isabel Clifton, of Strutt and Parker in Exeter, said a city centre townhouse sold at the end of last year received an offer from both a mortgage borrower and cash buyer, with a £50,000 difference.
Ms Clifton said: “The lesser offer was a chain free, cash buyer and the higher offer needed a mortgage and was in a chain.
“The clients accepted the lesser offer just on the basis that it was cash and there was such anxiety about rising interest rates. I don’t think it would have been such a black and white decision six months prior.”
The old adage “cash is king” has not always held true. For example in September 2021, before the mini-Budget, mortgage borrowers paid an average of 100.3pc of a property’s asking price, compared with 100.8pc paid by cash buyers.
Likewise, buyers with a mortgage had a significant price advantage in April 2020, when they typically agreed 97pc of an asking price compared with 98.9pc paid by cash buyers.
But falling house prices have turned the tables. Sellers now place significant value on a quick and simple transaction, in some cases willing to accept offers tens of thousands of pounds less.
Ed Hartshorne, of Blenkin & Co estate agency in York, said: “There’s no hurdles such as a mortgage survey and cash buyers can also indemnify a search if they want to move quickly, which isn’t possible with a lender.
“We recently sold a great family home in North Yorkshire, on the market for £1.25 million and with seven bids. The vendor chose a cash buyer and accepted their offer of £100,000 less than that of the nearest bid which needed a mortgage.”
Proceeding with a cash buyer also negates the risk of a lender and their surveyor down valuing a property below an agreed price, which can lead to banks pulling or dramatically reducing their offer and sales collapsing.
Josephine Ashby, of John Bray Estates in Cornwall, said: “Cash purchasers are crucially not at the mercy of valuers who may not accept the agreed price in a tricky market.
“It is difficult when higher bids come from mortgage related offers; the higher the price goes, the more risk it has of being down valued.”
How to negotiate as a cash buyer
One of the biggest bargaining chips cash buyers can use to their advantage is the promise of a quick sale. Jonathan Bramwell, of The Buying Solution, oversees multiple transactions each year in which a cash buyer will exchange contracts within 12 to 48 hours.
Mr Bramwell said: “Cash buyers have the advantage of being able to take a view, such as on planning issues.
“They can decide not to wait for local authority searches or indemnify against them and so are able to exchange within a timetable of 24 hours to 10 working days – this can save buyers between 5-10pc with a seller keen to complete.”
But a word of warning to cash-rich buyers considering a low ball offer; there is a fine balance between driving a hard bargain and simply offending a seller with a ludicrously low offer, said Mr Bate.
He added: “It's important not to be seen as simply trying your luck. We've seen instances where sellers have refused to do business with a buyer after they have put in an offensively low offer, so they do need to find the right balance.”
