Cash buyers make up a growing percentage of buyers in the UK. Whether you are a buyer or seller, there are several reasons why cash transactions can eliminate some of the stress involved in moving home. However, like with anything, there are also disadvantages to buying or selling a house with cash.
We explorer the subject in this article.
What is a cash buyer
A cash buyer is someone who can buy a property exclusively with cash, without the help of a mortgage or loan. The definition of a cash buyer is often misunderstood – a cash buyer must have the money available at the time of putting in an offer. As a result, to be a cash buyer, you must be able to afford the new property without relying on the money from selling your old one.
When a property sale falls through, it is both frustrating and costly. According to figures released by independent home buyer Quick Move Now, a quarter of house sales in England and Wales fell through before completion in 2019. Whether you are a buyer or seller, a significant advantage of cash transactions is that the purchase is less likely to fall through.
No risk of mortgage issues
17% of failed sales were because the potential buyer is unable to secure a mortgage. Even if the buyer has got an agreement in principle for a mortgage or loan, the lender can still decide, for various reasons, not to go ahead with the deal. If the sale falls through, the vendor has to look for a new buyer, and the stressful process begins again.
A cash buyer will not be looking to arrange a mortgage, so the sale is more guaranteed.
There is no complicated house chain
The main reason for property sales being unsuccessful is that somebody changes their mind in the chain. This could be because they found another property they prefer, or their situation changed.
Selling to a cash buyer prevents a chain forming beyond the purchaser as they do not have to wait until someone has bought their property. As there are fewer people in the chain, it is more likely that all the transactions run smoothly and the sale of your property goes through.
The process is much faster
A cash sale releases funds to the seller very quickly, and the deal can go through in a matter of weeks. If a buyer needs to arrange a mortgage, this can take around one month from the initial application.
This is a significant advantage to the seller if they need to access funds quickly or if they need to move swiftly for work purposes or other personal reasons.
Faster sales also reduce the risk of the deal falling through. Research from Quick Move Now suggests that 15% of failed sales were due to sellers pulling out because the sale is taking too long for them.
There is more security
A cash buyer will own the property outright and so does not need to worry that their home could be repossessed if they were to get into financial difficultly that left them unable to meet their mortgage payments.
Selling to a cash buyer does have its benefits, but it also has its pitfalls.
Cash offers are often less
The price a cash buyer is willing to pay for a property may fall far below the asking price. Many cash buyers will be people looking to buy a home for themselves, but other cash buyers may be investors or companies looking to get a good deal. As a vendor wanting to achieve as good a sale as possible, a cash buyer may not be the best option.
Cash sales can still fall through
It is true that a cash buyer will not require a loan and will not be part of a chain, and this may reduce the risk of the sale falling through. However, it doesn’t prevent people from changing their minds or issues being found during a survey.
There could be something wrong with the property
When a property is advertised as “cash buyers only” it could be because the seller needs to release the funds quickly. For instance, they may be in arrears and facing repossession, or need to relocate to another area for work purposes, or other personal reasons. However, it could be that the seller suspects that the property is unmortgageable and hopes to avoid a home survey which would be required by a mortgage lender.
Loss of liquidity
As a cash buyer, you will be tying up a considerable amount of your money in bricks and mortar. While this may be a great financial move, you need to be sure that you will not need to access the cash.
Buying a house with cash process
The process for buying a house in cash is very similar to any property purchase except that you will not need to arrange a mortgage.
Mortgage lenders perform many checks before they lend someone the money for a house. As a cash buyer, you should do the same.
Check property searches
A mortgage lender will carry out several searches, including a Local Area Search, Regulated Drainage and Water Search and Land Registry Title Plan. Your conveyancing solicitor will probably check these but be sure to check with them and ensure you understand the results.
Get a survey
Mortgage lenders require a mortgage valuation survey before approving the loan. As a cash buyer, you will not need this. Opting not to get a survey done might seem like a money saver, but it could end up being a costly mistake. Fixing structural issues like subsidence can cost a large amount of money, flagging issues before the exchange of contracts may mean you can reduce the purchase price of the property to compensate for them. You may also decide not to go ahead with the sale.
If you’re looking to buy or sell property in the Wimbledon, Coombe, Kingston Hill or Wimbledon Village area, we can help ensure a smooth process – whether it is a cash purchase or not. Contact us today.