"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"
- Jonathan Samuels - Octane Capital
New research by specialist property lending experts, Octane Capital, has revealed that since interest rates started to climb, home sellers have been dishing out larger discounts to cash buyers to avoid any potential pitfalls posed by mortgage market uncertainty.
Octane Capital analysed house price data for both cash and mortgage-backed homebuyers, how the two currently differ, and how the discount secured by cash buyers has changed since interest rates started to rise in December 2021 and since they were frozen in August 2023.
The research shows that back in December 2021, when interest rates first started to climb from a record low of 0.1%, the average cash buyer was paying £255,616 across Britain. This equated to a -8.5% 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%. 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 mortgage 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% 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% 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% versus the price paid by mortgage-backed homebuyers, with the North West not far behind at -14.1%.
Scotland is the only other region where cash buyers are securing a double-digit discount at 13.3%, with the West Midlands (-8%) and East of England (-7.9%) also making the top five.
As is always the case, 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% more than the average mortgage-backed homebuyer, although this has since reduced to 3.2% today.
CEO of Octane Capital, Jonathan Samuels, commented: “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.”
