You’ve probably heard the term ‘cash buyer’ before.
But what is a cash buyer and is it safe to buy a property that is on the market for ‘cash buyers only’?
We’ll provide all the answers here…
What is a cash buyer?
A cash buyer is someone who can afford to buy a property without the need for additional funding, like a mortgage.
The term ‘cash buyer’ is often misrepresented, however.
To be classed as a cash buyer, you must have access to enough money to buy a property when you make an offer – meaning if you’re relying on the sale of your current home to fund your new purchase, you’re not technically a ‘cash’ buyer.
In 2019, it was estimated that 28% of property sales in the UK were to cash buyers – a slight fall on the previous year.
The benefits of being a cash home buyer
If you’re in the position to buy your next property with cash and you don’t need mortgage funding, that puts you in a strong and enviable position.
Sellers see cash buyers as something of a holy grail in property terms. Why?
Because when it comes to selling and buying property, speed is a crucial factor and sales to cash buyers are generally faster.
Why do sellers prefer cash buyers?
Selling to a cash buyer takes the mortgage application element out of the sales process, meaning it can be far quicker to reach that magical exchange of contracts. And if you’re a genuine cash buyer, you could find that your seller is willing to accept a lower offer, due to the sale potentially being less complicated and much faster.
As a genuine cash buyer, you’re also not relying on the sale of your current property to fund your new purchase, so, in essence, there is no downward chain. It’s estimated that around one in five property sales collapse at a point further along the chain, so being able to shorten that chain by selling to a cash buyer will always be hugely appealing to sellers.
What happens with a cash buyer?
The process of selling your property to a cash buyer is essentially the same as selling to any other buyer.
However, it’s likely your sale will be quicker, and it should be less complicated.
That’s because your buyer doesn’t need to go through a mortgage application and underwriting process to secure funding – nor do they need to rely on the sale of their existing home to produce the cash required.
A cash buyer will still have to prove they have the funds to complete the purchase, but this won’t be dependent on a mortgage lender processing their application and undertaking a valuation, which can cause delays. A cash buyer:
• Will still need a solicitor or conveyancer to carry out searches and deal with the transfer of funds
• Should still appoint a surveyor to carry out a survey on the property
The pros and cons of selling a house to a cash buyer
While a cash buyer might seem like a dream ticket to a quick sale, there are a number of cons to balance the pros of selling to someone who doesn’t require a mortgage:
Pros
• No risk of mortgage application issues
• No downward chain beyond your cash buyer
• A faster sales process
• More security
Cons
• You may have to accept a lower offer
• The sale could still fall through – either because your cash buyer changes their mind or there are issues with their survey
For the cash buyer themselves, the one negative aspect of purchasing without the need for funding is a loss of liquidity.
As a cash buyer, you’ll be tying up a substantial amount of money in your property. And while not having the debt burden of a mortgage can be seen as a huge positive, you’ll need to be certain that you won’t need to access the cash in your home in the future.
Why would a property be listed as a ‘cash only’ sale?
When searching for properties to buy online, you may have come across some that are listed as ‘cash buyers only’.
This can set the alarm bells ringing, even if you are a cash buyer, but there could be many reasons why a property is listed for cash buyers only:
• The property may have a structural issue that means getting a mortgage on it would be impossible
• The seller may have personal reasons for needing a quick sale, for instance being in arrears with their mortgage or needing to release equity quickly for another reason
• The property could be a buy-to-let that is being sold with the tenants in situ – many lenders won’t fund purchases like this, meaning a cash buyer is the owner’s only option
• If the property is leasehold and has a short remaining lease with the freeholder, it may not be possible for a buyer to obtain a mortgage
• The property may have an unusual construction that would be a concern for mortgage lenders
How to safely buy a house with cash only
When buying a property that is for sale to cash buyers only, be sure to do your due diligence:
• Find out why the property is being sold for cash only
• Undertake a thorough structural survey so you’re fully aware of any problems with the property
• Have your solicitor carry out a complete set of local searches
Another option when purchasing a property for cash is to buy at auction.
If you’re in a position where you have funding in place, buying at auction can mean:
• A wider choice of properties to buy
• A straightforward buying process
• The security of exchanging contracts instantly
Further reading…
If you’re looking to purchase a London property, take a look at our guide on where to buy.
And if you’re a first-time buyer, this guide tells you everything you need to know about buying in the capital for the first time.
