Cash buyers hold bigger advantage due to rising mortgage rates

Cash buyers are swooping in and making home purchases for less than their mortgage counterparts, suggesting they are in a stronger position thanks to the current environment of rising interest rates.

In June 2023 cash buyers sealed deals for £27,600 less than those using a mortgage, compared to a difference of around £23,600 in December 2021, before the Bank of England made the first of its 14 consecutive interest rate increases.

The analysis comes from specialist property lending experts, Octane Capital, which compared transactions and prices in the mortgage and cash buyer markets.

While mortgage holders are subject to rising interest rates and higher prices, the sector has remained busy.

Some 69% of purchases were made with a mortgage across Great Britain between December 1st and April 2023 , more than two thirds the overall total.

North West – where there’s the biggest mortgage premium

Property purchasers using a mortgage buy at a higher price in every region of Great Britain, with the exception of London.

Mortgaged buyers in the North West pay the biggest premium in terms of price, as they typically pay £31,100 more than their cash buyer counterpart, with a purchase price of £226,000 compared to £195,000.

Those using a loan similarly pay £27,600 more in the South East, with an average offer of around £401,000 compared to £373,000.

Meanwhile there’s a gap of £23,200 in the North East, where mortgaged buyers pay £169,000 and cash purchasers typically buy for £146,000.

The gap in price between cash purchases and mortgages has widened over the 20 month period in every region outside of London.

London – where cash buyers spend more

As is often the case with the property market, London has its own narrative.

In the capital purchases with cash typically cost £26,500 more, the opposite trend to the rest of the UK.

The existence of Prime London is likely to skew the data, as a relatively small number of high-value purchases in areas like Kensington and Westminster are capable of shifting up the overall average.

South West – where competition from cash buyers is strongest

Mortgaged buyers in the South West have substantial competition from cash buyers, as purchases without a mortgage accounted for 38% of transactions between December 2021 and April 2023.

Cash buyers also take significant shares in the market in the North East (35%), Wales (35%) and Scotland (34%).

It’s the opposite story in London, where cash buyers only account for 22% of purchases, compared to 78% that use a mortgage.

The high house prices in the capital mean that all but the richest buyers are forced to use a mortgage.

CEO of Octane Capital, Jonathan Samuels, commented:

“It’s 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.

“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.”