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Cash purchases driven by investors and downsizers

ended 01. September 2023

The Nationwide August house price index was published this morning and it was grim. According to Robert Gardner, Nationwide's Chief Economist: “August saw a further softening in the annual rate of house price growth to -5.3%, from -3.8% in July, the weakest rate since July 2009. Prices fell by 0.8% over the month, after taking account of seasonal effects."

However, one figure that wasn't in the red was the number of cash purchases, which rose by 2%. The Nationwide said: “Home mover completions (with a mortgage) in the first half of 2023 were 33% lower than 2019 levels, whilst first-time buyer numbers were c.25% lower. Buy-to-let purchases involving a mortgage were nearly 30% below pre-pandemic levels. By contrast, cash purchases were actually up 2%.”

So who are the cash buyers? According to Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages: “Typically, these people are seasoned landlords with ready cash, allowing them to swiftly finalise deals, often at very strong discounts. Subsequently, they often refinance those properties and repeat the process. Even if interest rates rise, if the decline in property values surpasses the uptick in borrowing costs, the deals remain appealing.”

Graham Cox, founder of the Bristol-based broker, Self Employed Mortgage Hub, agreed with Malik: “The cash buyers out there are likely to be property investors purchasing property at below-market value from distressed sellers. And estate agents will be favouring cash buyers to prevent chains collapsing. The latter is happening a lot right now due to the state of the market.”

Peter Stamford, director of Alston-based Moor Mortgages, drew the same conclusion as Malik and Cox but added many of the cash buyers will also be downsizers seeking to dodge the remortgage bullet: “These cash buyers are predominantly made up of affluent property investors, but also homeowners with enough equity who are downsizing to avoid the remortgaging pain."

Joe Garner, managing director of property consultants, Joe Garner Consulting, confirmed that seasoned property investors are taking advantage of the current house price slump: “In today's uncertain property market, liquid investors are seizing the opportunity to snap up bargains with remarkable speed and agility. Armed with the advantage of immediate liquidity, they often have the upper hand and are able to negotiate favourable terms and close deals swiftly.”

Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages, drove home the harsh reality that while many lose out, others cash in: “The grim reaper has got a firm grasp on the property market. There has been a huge downturn in property transactions with mortgages and overall house prices. A gaping void of demand and falling house prices have left the wealthy with no mortgages to fill their boots."

His views were echoed by Imran Khan, co-founder of Canary Wharf-based PropertyLoop: “We're officially in a buyers' market, but it's like trying to catch a falling knife for sellers. If you need to sell, get realistic with prices quickly: the longer you wait, the worse it will get. As interest rates head toward 6%, buying power is eroding fast. It may be a buyers' market, but mortgage buyers are facing a crunch. In contrast, cash buyers are in a commanding position: they bypass mortgage hassles, complete faster and break fewer chains. Property owners are now favouring cash offers over higher mortgage-backed ones, a trend last seen in 2008-09. If you have cash, now's the time to deploy it. Sellers don't want the uncertainty of mortgage approvals disrupting a deal. Notably, cash buyers are seizing deals across the market spectrum, from the bottom to the top.”

Sharon Hewitt, MD at Beaconsfield-based relocation company, Chiltern Relocation, said “the Nationwide’s house price index indicating that cash sales have increased by 2% is in line with our own findings as a relocation company. Our clients are interested in coming to the market right now to potentially scoop a bargain with no chain and a quick transaction being offered”.

Darryl Dhoffer, founder of Bedford-based The Mortgage Expert, summed the situation up succinctly: "In the current market, cash is king and if you're fortunate to have it, you hold all the cards."

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8 responses from the Newspage community

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Riz Malik
Independent Financial Adviser at R3 Wealth
A struggling market invariably offers opportunities for cash buyers, and this market is consistent with that trend. Typically, these people are seasoned landlords with ready cash, allowing them to swiftly finalise deals, often at very strong discounts. Subsequently, they often refinance those properties and repeat the process. Even if interest rates rise, if the decline in property values surpasses the uptick in borrowing costs, the deals remain appealing.
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Editor
Darryl Dhoffer
Founder at The Mortgage Geezer
In the current market cash is king and if you're fortunate to have it, you hold all the cards. If the Government thinks that introducing a mortgage charter would save the day, and would only affect current mortgage holders, then they need to think long and hard, as these figures are catastrophic and will continue this year and next year unless there is some very calculated intervention. If the government aimed to grind the UK into a recession, well they are well underway with that.
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Jamie Lennox
Director at Dimora Mortgages
The grim reaper has got a firm grasp on the property market. There has been a huge downturn in property transactions with mortgages and overall house prices. A gaping void of demand and falling house prices have left the wealthy with no mortgages to fill their boots. Further pain could be felt in months to come with further base rate increases still on the horizon, which could be the kiss of death for the housing market.
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Graham Cox
Director at Bridging Hub
The cash buyers out there are likely to be property investors purchasing property at below-market value from distressed sellers. And estate agents will be favouring cash buyers to prevent chains collapsing. The latter is happening a lot right now due to the state of the market.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
In a volatile UK housing market, cash buyers are capitalising on opportunities. These cash buyers are predominantly made up of affluent property investors, but also homeowners with enough equity who are downsizing to avoid the remortgaging pain. As the Bank of England prepares to implement its 15th consecutive rate hike, traditional buyers are finding themselves increasingly marginalised, leading to unstable property chains. Though there's been a modest dip in prices, the cost of entry into homeownership remains prohibitive for many, perpetuating a state of financial uncertainty.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
The landscape for private landlords has become increasingly challenging as soaring borrowing costs have made it ever more difficult to make property deals financially viable. The once-attractive yields in the rental market are being eroded by high interest rates, leaving landlords grappling with reduced profit margins, forcing them to rethink their investment strategies. The dream of homeownership for many first-time buyers is becoming more and more elusive as high interest rates weigh heavily on their aspirations. With borrowing costs surging, mortgage affordability takes a hit, making it daunting for prospective homeowners to take that crucial first step onto the property ladder. In today's uncertain property market, liquid investors are seizing the opportunity to snap up bargains with remarkable speed and agility. Armed with the advantage of immediate liquidity, they often have the upper hand and are able to negotiate favourable terms and close deals swiftly.
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Imran Khan
Co-founder & CEO at QuantumLoopAI
We're officially in a buyers' market, but it's like trying to catch a falling knife for sellers. If you need to sell, get realistic with prices quickly: the longer you wait, the worse it will get. As interest rates head toward 6%, buying power is eroding fast. It may be a buyers' market, but mortgage buyers are facing a crunch. In contrast, cash buyers are in a commanding position: they bypass mortgage hassles, complete faster and break fewer chains. Property owners are now favouring cash offers over higher mortgage-backed ones, a trend last seen in 2008-09. If you have cash, now's the time to deploy it. Sellers don't want the uncertainty of mortgage approvals disrupting a deal. Notably, cash buyers are seizing deals across the market spectrum, from the bottom to the top.
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Sharon Hewitt
Managing Director Chiltern Relocation at Chiltern Relocation
The Nationwide’s house price index indicating that cash sales have increased by 2% is in line with our own findings as a relocation company. Our clients are interested in coming to the market right now to potentially scoop a bargain with no chain and a quick transaction being offered. However, the houses on the market with 2022 pricing are sticking to their guns and not budging on price. The houses with the correct pricing for the current market are selling well. Cash buyers offering 15%-20% discounts will only be disappointed in not getting a bargain. The skill is passing the reductions further down the chain. If we offer 10% off the asking price, what are the sellers moving to and can there be an adjustment in their onward purchase?