Big discounts for cash buyers as vendors stay desperate to sell

New research suggests investment buyers with cash can secure chunky discounts on residential properties.

Octane Capital analysed house price data for both cash and mortgages buyers, how the two currently differ, and how discounts have risen in the past three years.

The research shows that back in December 2021, when interest rates first started to climb from a record low of 0.1 per cent, the average cash buyer was paying £255,616 across Britain. This equated to an 8.5 per cent discount versus the average mortgage house price of £279,220.

Fast forward to August 2023 and the base rate was finally frozen at 5.25 per cent. 

However, with interest rates remaining at their highest levels since 2008, mortgage market uncertainty remained rife, as buyers continued to struggle with the continuously changing face of the lending landscape.

While both mortgaged and cash house prices had both climbed during this period, cash house prices averaged £273,685, across Britain, pushing the discount extended by home sellers to 9.4 per cent versus the average mortgage house price of £301,932.

Although a more settled picture has since emerged, with the base rate being held on four consecutive occasions, the discounts offered to cash buyers have continued to creep up.

Currently, the average cash buyer is paying £268,346 across Britain, a 9.7 per cent discount compared to the average mortgage house price of £297,185.

The North East is home to the largest discounts offered to cash buyers at 14.6 per cent versus the price paid by mortgage backed homebuyers, with the North West not far behind at 14.1 per cent.

Scotland is the only other region where cash buyers are securing a double-digit discount at 13.3 per cent with the West Midlands (8.0 per cent) and East of England (7.9 per cent) also making the top five.

London is the only region to go against the grain when it comes to the discount offered to cash buyers.

In December 2021, the capital’s cash buyers were paying 5.1 per more than the average mortgage backed homebuyer, although this has since reduced to 3.2 per cent today.

The chief executive of Octane Capital, Jonathan Samuels, comments: “Sellers will always offer discounts to cash buyers as they provide a swifter, more certain sale without the potential pitfalls that can come from those purchasing with the help of a mortgage.

“However, in recent years the extent to which sellers are willing to stretch for a cash buyer has only increased and this has been largely due to the uncertain mortgage market conditions spurred by higher interest rates.

“With the base rate increasing consistently between December 2001 and August 2023, many mortgage backed buyers were simply finding that their borrowing eligibility was changing from one day to the next, leading to an increase in withdrawn or amended offers, with many more opting to put their plans to purchase on hold completely.

“As a result, sellers have been more inclined to slash their price expectations even further for a cash buyer, as the benefit of their far stronger market position far outweighs the discounted price required to secure them.”