The residential property market has experienced a number of extreme stressors over the past 18 months: the cost-of-living crisis, rising inflation, rising interest rates, and the fall-out from last September’s mini-budget … not to mention the economic effects of the war in Ukraine.
No wonder overall market activity is down and transactions in 2023 are running at around 85% of the pre-Covid average (2015–2019). All this considered, you might think that every area of the market would be suffering. But there’s one market segment that’s showing remarkable resilience:
The non-lender buying sector, aka cash buyers.
In this blog post, we’ll look at the reasons behind that market resilience. But also, what are the potential risks for non-mortgage purchasers? And how can you help your cash-buyer clients make more confident investments, without sacrificing the strength of their negotiating position?
Cash purchases on the rise
According to statistics recorded by Savills, cash buyers accounted for nearly 8 out of 20 transactions (38.5%) in January 2023. By contrast, mortgaged home movers accounted for just over 5 out of 20 transactions (25.3%).
Since then, cash buyers’ share of the market has continued to grow. In an upcoming OneSearch webinar featuring Savills Director of Residential Research, Emily Williams, it points to data showing cash buyers comprised about 46% of all transactions in April 2023 – up from around 34% in late 2022.
The proportion of cash buyers is even higher in prime markets. In those areas, buyers tend to be less dependent on mortgage finance. For instance, this year in prime central London as many as 14 out of 20 buyers (71%) have purchased using cash only. That’s up from around 12 out of 20 buyers (60%) in 2022.
What factors are contributing to this resilience?
Cash buyers have, in fact, represented the largest market segment since 2011.
One reason for their apparent recent growth is down to the surge in lender-backed purchases post lockdown. Increased activity from mortgaged home movers saw cash buyers’ market share squeezed between 2020 and 2022.
Since March 2021, we’ve seen the proportion of mortgaged-backed purchases drop from 1 in 3 transactions to around 1 in 4. And while the market turmoil in the wake of the mini-budget made the headlines in October 2022, a noticeable falling-off in transactions has been evident since the stamp duty holiday came to an end in September 2021.
In large part, the dampening effect in the market stems from the cost of borrowing going up. That continues to be the major constraint on first-time buyers and mortgage-backed home movers.
But part of cash buyers’ market strength is also down to their comparative ability to move fast to completion. This can make them an attractive proposition to many sellers. Indeed, those with access to readily available funds can often negotiate a reduced sale price on the basis of a time-limited offer.
Yet a determination to move fast can see cash buyers take on risks that mortgage lenders would not.
To search or not to search?
It’s imperative to understand that searches play a vital role in a property transaction and whatever the circumstances a full range of searches as advised by a conveyancer is always the best way to get all the property information required to make an informed decision. However, some cash purchases are negotiated by buyer and seller and the timescales of search delivery can fall out of these agreed parameters, so some form alternative safeguard maybe required to enable the purchase to proceed.
Bypassing the searches altogether however, is ill-advised. Property searches typically only cost a little extra; the possibility of local authority delays mean that delays could push completion, back several weeks, which is why your cash buyer clients may want to skip this part of the conveyancing process – particularly if they have negotiated a sale using a timescale caveat (e.g., exchange in 31 days).
Fast forward a couple of years, however, to when your client is looking to sell: a more prudent buyer’s searches could uncover defects that were there to be discovered. Defects such as:
- Unauthorised building works
- The property’s location on a floodplain
- The lack of connection to a sewerage network
- Planned changes to traffic schemes
- Proposals for a nearby railway
- Previously rejected planning permission applications
- And many more.
These types of defects can significantly affect the resale value of a property. Not only might your client be unable to achieve the profit they had expected to make, but they might struggle to persuade other buyers and their lenders that their property is worth anywhere near what they paid for it.
Why might a vendor be keen on a quick sale? Why might they be happy to accept a low offer? And why might they be marketing their property as for ‘cash buyers only’?
These are questions your cash buyer clients should be asking themselves.
It may be that the seller simply wants a fast and uncomplicated sale. Perhaps they need the proceeds quickly and don’t want to risk a sale falling through. So they’re prepared to accept a lower price to guarantee a speedy transaction.
Those are the good scenarios. But it could be they’re trying to rush through a sale so that known defects aren’t looked at properly. And because of the rundown condition of the property, perhaps they suspect that a mortgage provider won’t lend funds to a would-be buyer.
As corner-cutting goes, not undertaking searches can be particularly dangerous. Which is why mortgage lenders would never take the same risk. And why, at OneSearch, we believe a full suite of conveyancing searches remains the best way to gain a true picture of a property and its history.
But now there’s a new way for your clients to secure a level of protection, without jeopardising a speedy transaction or risking a drop in the property’s onward sale value.
Introducing Cash Buyer Express
Created for an area of the residential property market where speed is paramount, Cash Buyer Express from OneSearch has been designed with time-sensitive purchases in mind.
It’s the perfect solution for those cash buyers who don’t want to put transactions at risk but who want to be better informed and suitably protected. The ideal tool for those who don’t want to risk waiting 6–7 weeks for searches to come back, but who want to feel more confident in making what is, after all, a significant financial investment.
How does it work?
Peace of mind… at pace
OneSearch is the only company to hold a national database of most of the available local authority data on every property in England and Wales.
Cash Buyer Express provides up to 70% of the information you would normally get from local authorities. But your clients can expect results in as little as 24 hours, so there’s no hanging around.
In practical terms, a sale will go through just as fast with or without Cash Buyer Express. The difference is your clients will be better informed. More importantly, they will have the security of an insurance policy covering a reduction in the property’s resale value from unidentified defects.
Protection… on purchase
Your clients are protected by a £1 million No-Search Insurance policy with Aviva. This is tailor-made for non-mortgage transactions and provides cover for:
- A search of the local land charges register on form LLC1
- A search of CON29R and/or CON290 records
- A search of water and drainage records on CON29DW
- A search of the coal authority’s records on form CON29M
- An environmental risk assessment
- A full chancel repair liability search
The policy will compensate your clients for the difference between the price they pay for a property and any subsequent reduction in value caused by unidentified issues – for example, the existence of a public right of way – that a full local authority search would have revealed.
In a nutshell, Cash Buyer Express gives cash buyers clarity, confidence, and complete peace of mind – without delay.