'Cash Buyers Only' – What is a Cash Buyer?

26/08/2019
Cash buyers make up 34% of the housing market in the UK, according to the ONS English Housing Survey 2017 to 2018, and they are often preferred by sellers over buyers getting a mortgage in the hope there will be less challenges and a quicker completion; in fact some properties are marketed as 'Cash Buyers Only'. Whilst there are advantages of buying a house with cash in the UK, there are some serious disadvantages to consider such as taking risks a buyer with a mortgage can't take. We explain in this article some of the critical things to consider before buying a property for cash including:


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    1

    What is a Cash Buyer?

When it comes to buying a property, a cash buyer is someone who doesn't have to use a mortgage or loan to buy it. The purchase will use their own funds or those gifted to them. 

It doesn't mean you literally pay for your house or flat with piles of cash. In fact with increasingly stringent money laundering and other related laws, no solicitor would allow you to use cash to fund your purchase and would also be under an obligation to report the transaction  to the National Crime Agency for investigation. Cash buyers pay for properties using funds held in their personal bank accounts held in the UK.

There are transactions where money is being used from outside of the UK to fund a house purchase. In such cases there are a large number of countries that some solicitors cannot accept money from. Read more on this here - Receiving money from outside the UK - which countries are safe?

Want to know more about your conveyancing solicitor's due diligence procedures?

Please read How to Prove Source of Funds - this popular article sheds light on what sources of funds solicitors find acceptable and those which they don't, including for example which jurisdictions are viewed as acceptable for sourcing funds from and those which are viewed with suspicion.

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    2

    Cash Buyer vs Mortgage Buyer

Cash only buyers of property have at least two clear advantages over mortgage buyers:
  • They spend less money overall on the actual purchase price of the property because they don't have to make interest payments to a mortgage or other loan lender.
  • Their conveyancing process can move more quickly because they don't have to go through a mortgage application process or involve a lender, which always adds more time.
The second of these points is particularly desirable for property sellers not only because they can look to being paid their sale monies more quickly but also because a mortgage buyer's purchase funds are only guaranteed once they receive their final mortgage offer, which must give them enough money overall to proceed.

There are various points in the mortgage process which might result in a lender declining to lend to a mortgage buyer and this is one reason why an estimated one in three conveyancing matters fail to complete.

What other advantages does a cash buyer have over a mortgage buyer?

The mortgage process, as referred to, involves a mortgage buyer having to both undergo scrutiny and also adhere to various strictures imposed by their lender, many of which are required by law, and there are also additional fees to pay during the conveyancing.

For example, mortgages frequently have product and set-up fees (these are two separate things and might cost hundred of pounds or even more than a thousand pounds. Additionally all mortgage buyers are required to buy property searches (click to find out more), which might cost them up to £500 or more.

In looking to protect their commercial interests, however, many of the conditions and costs which lenders impose are connected with ensuring that the property their buyer is looking to buy is worth the price it is being sold for and does not suffer from defects which might jeopardise their investment.

In the next section we'll refer to the ways in which you can directly save money on your conveyancing as a cash buyer however some of these amount to cutting corners and can leave you more open to buying a property with serious defects, for example.


    3

    Can you save money on your conveyancing as a Cash Buyer?

The short answer is yes, however you should carefully consider whether you should regarding some of the choices you have.

As a mortgage buyer, as stated, you're required to pay for property searches to check for any issues affecting the land your property's built on as well as whether your building has the correct planning permissions and/or building control permissions for any alterations which require them. You don't have to purchase any property searches as a cash buyer, but:

  1. You won't be able to provide your solicitor with this vital information for them to carry out checks on your property.
  2. When you come to sell up, should your buyer be a mortgage buyer then they will have to purchase these searches - and these might uncover issues which seriously depreciate the value of your property, such as it being built on contaminated land.

As any buyer, whether via mortgage or cash, you're not legally required to get a RICS home buyers survey, however in the case of a mortgage buyer, at the very least the bank always requires that a mortgage valuation  (click to find out more) is carried out - that the buyer has to pay for - and this can sometimes uncover property defects or lead to further investigations into possible defects, being of value to both the lender and the buyer. You'll also get a RICS valuation figure out of this whereas up to this point you might have relied purely on the estate agent's valuation (which can often be optimistic!).

As stated previously however, you won't have to pay for mortgage product or set-up fees and naturally you won't end up paying huge sums in interest payments to a lender over the lifetime of a mortgage.



    4

    Cash Buyers Only meaning & conveyancing situations where this is likely to arise

'Cash Buyers Only' means as it sounds - you can only apply to buy the property or properties in question if you're not using a mortgage.

You'll often find sellers restricting applications in this way in the following situations, among others:
  • When a property is in serious need of refurbishment or the correction of a defect: this is because the seller might have judged that a lender is unlikely to lend the funds to a prospective buyer on account of the dilapidated state of the property. They therefore restrict to save time. These properties might be advertised as 'investment properties' or 'doer uppers' or even as having 'buy to let potential'.
  • The seller is wanting as quick a sale as possible - they simply want or need the proceeds quickly and so don't want to be delayed by a mortgage application, which might take possibly 6 or 7 weeks in total to complete when the mortgage offer is finally made, or the possibility that a mortgage lender might ultimately refuse to lend.
  • Auction properties; it's unlikely (although not impossible) that a lender is likely to lend on an auction property because of the likelihood of less chance of effective pre-exchange property defect checks (you exchange after you've won a bid and often you'll struggle to get any survey done within the time frames for example); additionally there's the chance that the property is being auctioned because of a defect which might be hard to uncover quickly.
Incidentally, auction buyers often use bridging finance to help them with their purchases. This loan funding, however, is not the same as getting a mortgage as it is generally for a short term only. It might typically be used when a successful bid is for a slightly higher sum than a buyer immediately has to hand.

    5

    What are the risks to a cash buyer?

Whilst there are some advantages being a cash buyer, there are some risks that can cost you. Here are just some of the ones to watch out for:

  • Skipping property searches - as a cash buyer you can choose whether or not to get property searches that include the local authority search, water and drainage search and environmental search. In our opinion, there are corners to cut, however this is not one of them especially as there is not a single mortgage lender who would take the same risk. The reason for this is that by not obtaining this information you can find yourself in the future trying to sell the property with a defect that effects its resale value. For example, in the local authority search it details building works completed at the property such as removal of load bearing wall or extensions. Home owners often do this work themselves and don't get the appropriate building control sign off. If you don't know there has been an extension or if it has been built to current building regulations then you could be left with a property that isn't worth what you paid for it; especially if your future buyer is getting a mortgage and needs to get the local search.
  • Ignore enquiries - for speed cash buyers often look to ask as few questions as possible, however this can leave them not knowing about defects or issues with the title. For example there might be a public right of way through the property tat many buyers would not want.
  • Cash Buyer No Survey - there is no mortgage lender in the market who doesn't get a RICS survey to inspect the property and deliver a mortgage valuation before the lender gives a mortgage offer so why do cash buyers choose to not get a survey? Structural defects can have a material impact on the resale value of the property. 

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