Most of the time, people will approach the bank for a mortgage in order to purchase a home. They will use their savings to determine a deposit which they can pay upfront – but the rest of the money will be paid monthly to the bank as you pay off the mortgage they have agreed with you. While this is the most common practice for homeowners, there are people who can afford to purchase a property without the need for extra help.
But exactly what is meant by a cash buyer and is it a beneficial direction to take? Around 23% of buyers in 2020 purchased a home in this way, slightly down from the same time the previous year. Now, this doesn’t mean you need to pay the owners with a wad of £50 notes… So let’s take a look at its real meaning.
What Is Meant By A Cash Buyer?
The definition is often misunderstood. The individual must have the money available to them at the time of putting in an offer. This means that anyone relying on the sale of their current home will not be classed as a cash buyer. It also means that the person does not have extra help from mortgages or loans.
Do Sellers Prefer This?
Most of the time, this way of buying makes the process to contract exchange far quicker. It cuts out the mortgage application process and all the small details that often hold up a sale. When you have the money to hand on the day of the offer – some clients may even be willing to accept a lower rate because of the ease and speed of the journey.
Although the process will mainly be the same as those applying for a mortgage, it tends to be much more straightforward and will reduce the likelihood of a chain. Sellers like this as there is less risk of your part of the bargain falling through. In other words, they can be more certain you are not going to be the reason for a failed sale.
Now we know what is meant by a cash buyer, for those that can afford it this may seem like the dream way to purchase your new home. However, where there are pros, there come cons. But first, let’s take a look at the top reasons people love it.
No Downward Chain
Probably the most attractive point of this whole process is the removal of a chain. If you already have the money sitting in your bank, you are not relying on a bank or sale of your own home to continue the process. This means there is less risk of it falling through altogether. You are already able to prove you can complete the sale.
When around 17% of failed purchases were due to the inability to secure a mortgage, the easy process looks extremely nice for both parties! As well as that, being able to complete more quickly bodes well for the sellers. They can get out of their own home and speed up the process to their next purchase as well.
People buying outright will not have the worry of repossession should they find themselves in a tricky financial situation. This offers a lot of stability and reassurance for buyers. Not only that, but people looking to buy this way will not make the offer unless they are sure it is the right decision for them.
Because they are putting a great deal of savings into this upfront, it is usually a long-term investment for which they do extensive research. This means they are more likely to follow through with the sale and sellers won’t need to worry about them pulling out near the end.
Wider Selection Of Properties
Typically, a cash buyer can make an offer on any house as usual, but it also opens up the world of ‘cash only’ properties. These are usually buildings that struggle to have a mortgage secured against it. With such properties, only people purchasing in this way will even be able to make an offer – widening the market as a result.
Usually, these will need huge renovations and repairs so anyone looking will need to take into account the cost of this. However, where the seller is aware of the costs, you may be able to get away with a lower offer. Paired with the ease of sale and understanding of the work it will take to make it habitable, sellers are often lenient.
It may seem like the best way to approach property sales, but there are still considerations to be made to see if it is a financially viable option for you.
Life Savings Tied Up In Property
One major thing to think about before investing this way is whether it is going to provide you with the best return on your investment. If you are in an area with a growing market or soaring house prices, it may be well worth it. If not, you may find more benefits elsewhere.
Furthermore, when you find yourself ploughing all of your money into this avenue you must decide whether you are able to survive without access to those funds. Do you have more saved elsewhere that will keep you ticking over each month in case of an emergency? Do you have job security that allows you to rest on your income after making the purchase? Or are you living off of your pension pot?
Issues With The Property
When a property is advertised as cash only, there is a fair chance that the owners need to release funds quickly. They may need to relocate or be facing repossession. If this is the case, they may not leave it in a good state. Should you have the money and will to make repairs or tackle an untidy property – this wouldn’t be an issue and you may get it cheaper!
However, when people sell quickly and cheaply, they could be looking to avoid a home survey that would be required with a mortgage. This could lead to some unknown issues or major defects arising once you’ve completed the contract.
Less Money For The Seller
Not always, but most of the time accepting a cash buyer will result in the seller seeing less money than originally thought when the home was valued. For some looking to move quickly, this might not be as much of a letdown. Although, for individuals or families who have a chain of their own and are looking to use money from this sale to purchase their next home – it could be a make or break situation.
If you are not asking for this kind of buyer exclusively, you may be swayed by the lack of chain and security. However, those with a mortgage lender will tend to give higher offers which may be a better fit for your financial situation.
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How To Safely Buy A House With Cash Only
It may seem strange to only accept offers this way. Sometimes it can be harmless and actually offer you an advantage on the market. However, it still means you need to do your research and be aware of what it may mean. To cover yourself and ensure you are making the right choice, here are some things to consider beforehand.
- Find out why they are not accepting mortgage offers – If there is a significant issue, it could cost you more than you are willing to pay in the long run.
- Carry out a full survey – To mitigate the issues mentioned above, it is always best practice to pay for a structural assessment. This can uncover problems before you have completed and signed the contract, should you wish to pull out.
Triple check your finances – It can’t hurt to be absolutely sure you will be financially stable after making this purchase. Don’t forget that it may need renovations and repairs too.
Need More Advice?
If you are still unsure about the meaning or whether you should be buying this way, you may want to speak to a financial advisor. Similarly, you can do your own research by reading articles similar to this one and by taking a proper look at your own finances. Budgeting and taking into account any future plans will give you an idea of what you can afford to do.
Also, if you have made your mind up and are looking to buy or sell cash only – you can get in touch with our expert team of estate agents. They will be able to walk you through each process, tell you what may be different than you’re used to as well as offer advice.
You can fill out a contact form today or visit our website to book an appointment and find out more. We know the local market inside out and will do everything necessary to support you. We keep our processes simple and transparent and won’t try to baffle you with small print or specialist language.