Soaring mortgage rates see cash buyers gain an advantage

Cash buyers are taking advantage of their stronger negotiating position over their mortgage-reliant investors because they can secure prices lower than those financed through mortgages, research reveals.

Octane Capital sees the trend is now becoming apparent and in June 2023, cash buyers finalised property transactions that were £27,600 below the prices negotiated by mortgagees.

This gap is much wider than seen in December 2021 when it was £23,600 – and before the Bank of England started its run of 14 consecutive interest rate hikes.

However, investing with a mortgage is still popular and from December 1st to April, 69% of real estate purchases across Great Britain were financed through mortgages.

‘It has always been easier to buy with cash’

Octane’s chief executive, Jonathan Samuels, said: “It has always been easier to buy with cash than spend time arranging a mortgage, but in the current environment it seems that advantage is bigger than ever, with cash buyers saving £27,600 compared to their mortgage counterparts.

“Mortgaged buyers are subject to more processes and delays, making it hard to compete with those who can swoop in with an immediate lump sum of cash.

“It’s also far tougher to qualify for a loan than in late 2021, as surging interest rates make it harder from an affordability perspective, so buying with a mortgage is not an easy task.”

He added: “If you are able to qualify for a mortgage, our data suggests you should get your finance arranged as quickly as possible to ensure you can seal the deal, even if you have competition from a cash buyer.

“In some regions, like the South West, that competition is particularly fierce, so you have to be ready to hand over the money.”

Using a mortgage having to pay more for properties

Regional variations see every region of Great Britain, except London, have buyers using a mortgage having to pay more for properties.

In the North West, this mortgage premium is most pronounced with mortgaged buyers paying an average of £31,100 more than their cash-buying counterparts.

The price contrast stands at £27,600 in the South East and £23,200 in the North East.

Over the span of 20 months, the gap between cash purchases and mortgage-backed transactions has consistently widened across all regions outside of London.

Cash buyers face an unusual trend in London

In London, cash buyers face an unusual trend where their purchases typically cost £26,500 more than those financed through mortgages.

However, this is likely down to the influence of prime London real estate where a handful of high-value transactions can significantly impact the overall average.

The South West sees cash buyers offer strong competition against their mortgage-using counterparts as it is where cash buyers account for 38% of all property deals in the region.

Similar trends are observed in the North East (35%), Wales (35%), and Scotland (34%).

In stark contrast, the London market demonstrates saw cash buyers representing only 22% of purchases – and 78% rely on mortgages due to the high house prices in the city.

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