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Cash is king – does this mean properties are being sold for less?

New research has shown that cash buyers are now purchasing properties at lower prices than buyers who may require a mortgage.

The findings are in view of the necessary uncertainties associated with the mortgage application process and the reluctance of sellers to take that chance when a cash offer is available albeit at a lower price. Cash buyers are simply individuals or companies who are able to purchase properties without having to raise loan finance.

A recent survey has shown that the average price cash buyers are paying for a property across the UK is £220,100 while mortgaged buyers are paying on average £240,758 for a property, a 9% premium. In Scotland, Falkirk has seen cash buyers secure the best deals for properties with properties being sold on a cash-basis for 24% cheaper than properties sold to mortgaged buyers.

Commentators have stated that often sellers tend to choose to sell their properties to cash buyers instead of mortgaged buyers as the whole process is simpler and is not dependent on third parties where circumstances may ultimately force a purchaser to withdraw from a deal. The processing of mortgage applications can take some time as these cannot be secured immediately, whereas a sale to a cash buyer can theoretically be settled within a few weeks. Sellers like the certainty of an earlier conclusion of missives which is not often achieved when mortgage finance is involved though this very much depends on the lender and how far the purchaser has advanced the initial process in the early stages. The drawback for sellers is that cash buyers may be successful in obtaining a property at a lower price than the seller’s expectations.

It has also been suggested that recent events such as Brexit and the ambiguity this brings has led to a decreasing number of interested buyers. In order to secure a sale in such circumstances, sellers may expect or accept a lower price and cash buyers may play an ever more important role. On the other hand, lower interest rates make it more attractive to borrow money, and the possibilities in terms of borrowing, mean that people are able to purchase properties at higher prices than if a cash purchase was the only option.

The research does not indicate whether the properties that are being sold on a cash-basis and at a lower price are particularly smaller in size or are in less attractive locations.

London is one of the only places where cash buyers do not get the best deal on properties. Research has shown that in London, cash buyers pay 6% more for properties on average than mortgage buyers. It has been suggested that this may be due to the fact that popular areas in London entice numerous cash buyers who compete with each other and whose circumstances are such that loan finance is simply not required.

It is worth noting that, there may be properties being sold in rural or remote locations such as the Scottish Highlands which are un-mortgageable, and cash buyers will be the only option, whether at a lower or higher price.

Overall, deciding whether to sell a property to a cash buyer fully depends on what the sellers are looking for. If they would like a fast sale process with little difficulty, cash buyers may be more appealing. However, if the price of a property is crucial, sellers may want to consider a variety of buyers to make sure they get the most out of the sale.