Many people tend to assume that most house buyers buy with a mortgage. After all, with the price of property today, who could have so much money sitting around that they can afford to buy with cash?
In truth, there are a lot more cash buyers in the property market than many people realise.
This report quoting Savills says that cash buyers make up about 35% of the market.
This (slightly older) report quoting agents Hamptons says that around 24-26% of house buyers are cash buyers.
In short therefore, while there seems to be some disagreement about their numbers, cash buyers are significant in number and so pretty important to the property market. Their influence shouldn’t be overlooked by buyers, sellers or agents.
Who are the cash buyers exactly?
Property buyers buy with cash for several different reasons. They may be very wealthy individuals with cash in the bank who can afford to. Or those with equity from a property they have recently sold. Cash buyers may be those who have paid off their mortgage. For example older buyers, who are perhaps also downsizers.
Often cash buyers are investors. However they may be spending cash but may have borrowed against another property to buy the next one. So in this case they are not pure cash buyers as such but in practical terms they are.
What’s important to know about cash buyers
The single most important thing to know about cash buyers is that their buying decision is not directly linked to the mortgage rate. In many cases cash buyers can still buy property no matter how high mortgage rates go.
This is especially important in times of rising interest rates. Cash buyers are likely to be as or even more significant in the property market in these times.
The only (and relatively minor) consideration for cash buyers when interest rates rise is the interest they will be forgoing on their money by buying a property with it rather than putting it into a savings account.
Cash buyers aren’t regulated by the usual mortgage affordability criteria. What they can spend isn’t regulated by their income, what deposit they can raise, loan to value levels or mortgage stress rates and so on.
An additional aspect to this is that cash buyers aren’t regulated by the other criteria mortgage lenders impose. For example, they can buy property that might not qualify for a mortgage, such as one having structural problems or one of non-standard construction.
Another important thing to know about cash buyers is that their buying decision may not be linked to market pricing, nor property price forecasts. Cash buyers aren’t affected by market sentiment so much.
In some ways it doesn’t matter how high house prices rise if they have the cash to spend. And they are often able to outbid other buyers who are buying with a mortgage.
In times when prices are falling, or are uncertain, cash buyers may still be willing to buy as negative equity is not a concern to them.
Indeed, cash buyers may be more likely to buy when prices are static or falling (as might happen when mortgage rates are rising) as they believe bargains are to be had.
Therefore it is very true to say that cash buyers are in a unique position in the property market. Their buying criteria and motivation are not the same as those who buy with mortgage finance.
What does all this mean for buyers, sellers and agents?
Considerations if you are selling to cash buyers
It is often thought that cash buyers are a desirable type of buyer to attract. Although there are both pros and cons to this.
Cash buyers can be hard to find. No estate agent can say for certain that they can find you a cash buyer. Indeed they may deal with relatively few.
Property auctions are more likely to be the preserve of cash buyers. House buying companies may be cash buyers too. Selling via either of these methods is very different to a normal private treaty sale however.
Cash buyers may be aware they are considered to be sought after buyers. So they may drive a hard bargain, perhaps unrealistically hard.
Cash buyers ought to be more likely to complete a sale with less chance of a sale collapsing, and do so more quickly. But it is important to release there is no guarantee of this.
It’s sensible to check that cash buyers are actually cash buyers, ie. they have proof of funds.
Considerations if you are a cash buyer
Always recognise the strength you have as a cash buyer, or are perceived to have. You may be able to secure a bargain.
Beware the temptation to overpay, just because you can. Even for a property you really want or like. It’s sensible to still aim to pay market value (or less) when buying with cash.
Beware the temptation to buy unsuitable property, just because you can. Mortgage buyers are to some extent automatically protected from buying unsuitable property as a result of mortgage lenders’ criteria but cash buyers have no such protection.
As a cash buyer it’s still advisable to get an independent professional valuation and survey to ensure that your buying decision is a sound one.