Buying a property is rarely straightforward. It can be a complex and all too often stressful process. Both sides are looking for ways to make the process easier whilst also looking for ways to save or make money.
Hearing the words ‘cash buyer’ immediately signals a more stress-free move. And who doesn’t want that? But does being a cash buyer really put you ahead of the game and are there any pitfalls that need to be considered?
Here’s the lowdown…
What is meant by a cash buyer?
A cash buyer is defined as a person who can purchase a property outright using funds they already have without the need of a mortgage.
To be a true cash buyer, the buyer must have the money available at the time of making the offer and not waiting for any other transactions to go through.
When is cash buyer not a cash buyer?
Lines can get blurred when a purchaser is waiting on funds from another source before being able to proceed. This could be from the sale of another property or waiting for an inheritance or gifted monies.
So, what can seem like an attractive, more stress-free offer could in fact be embroiled in another time-consuming process which can negate the benefits of dealing with a cash buyer.
What are the pros?
Speed
For cash transactions, a key advantage for both sides is there is no need to get a mortgage, either in principal, as a formal offer or for a lenders mortgage valuation survey.
This is a process which can take around five weeks and requires the processing of a lot of information such as payslips and bank statements.
Therefore, taking this out of the equation serves to help speed up the transaction process and remove the worry of a mortgage offer being declined and the house sale falling through as a result.
Protection from fluctuating interest rates
The recent rise in interest rate is beginning to affect the cost of a mortgage as borrowing becomes more expensive.
This can make potential buyers needing a mortgage more apprehensive as the marketplace becomes more uncertain and lenders tighten their lending criteria.
As such, a cash buyer is in a strong position when making an offer because they can be confident they are future-proofed against any increase in interest rates.
What to watch out for…
Impact on the asking price
Saving time is a key advantage of cash buyers and an appealing situation means cash buyers can be in a strong position to offer under the asking price. A seller needs to consider the advantages a cash buyer can bring.
No chain and no mortgage often mean less chances for problems. However, this is not always the case.
Cash can make an attractive proposition, but it can mean buyers will offer under the asking price for that very reason and it should always be remembered that cash buyers are not 100% without risk.
There are no guarantees for a secure chain
Property chains are a standard part of the home buying process. Unfortunately, the more people in the chain, the more complicated the transaction becomes. Just because there is a cash buyer involved does not necessarily guarantee the chain will be secure.
Most property chains collapse because buyers are unable to raise the finance needed to purchase the property. So, having a cash buyer in the chain can help things run more smoothly, but there are still no guarantees.
Don’t forget the conveyancer
To think a conveyancer is not required would be a mistake. There is still legal work required such as contracts to be drawn up, checks, and searches on the property.
Identity checks are also essential, as are anti-money laundering checks, which are particularly important for cash buyers to ensure the money is coming from legal means.
Aside from having no mortgage application process to navigate, there are still issues that can come up to put off the cash buyer in the same way as any other buyer.
Being a cash buyer can certainly seem to gain an extra advantage point for both buyers and sellers alike. But remember, nothing is guaranteed and so seeking the best professional advice is always essential to help ensure a smooth and stress-free transaction.
Peter Joseph is CEO of Home Legal Direct
