January saw 39% of all sales agreed go to a mortgage-free buyer. This made up the largest monthly share since December 2014. Even though mortgage rates have fallen in recent months, cash buyers are becoming the driving force of the 2023 housing market.
One of the reasons behind the spike lies in the fact that mortgaged purchases – particularly those of first-time buyers, have fallen back. But there are also more cash buyers in absolute terms. Overall sales agreed numbers may have fallen year-on-year, but this January saw a 50% increase in cash purchases.
There are many benefits of selling to a mortgage-free buyer. Sellers can complete much faster with a cash buyer – on average 20 days faster than those purchasing with a mortgage. Giving the cash buyer more negotiating power on price.
In January, cash purchasers averaged a 2% discount on the asking price of their future home. In contrast, mortgaged buyers have been paying much closer to the asking price, achieving only a 0.4% discount on average across England and Wales.
The affordability squeeze for mortgaged buyers in the face of higher interest rates can be seen in buyers’ budgets. In Q4 2022, the average cash buyers’ budget rose 0.9% year-on-year to average £320,400. However, the average mortgaged buyers’ budget fell 5.3% year-on-year to average £290,590.
Cash has always been more commonplace at the upper end of the market. In prime markets across Great Britain, cash buyers reached a record 46% of all purchases in January 2023. We believe that the end of the low interest rate era is a driving factor behind this increase. Some buyers have used cheap money in recent years to purchase their home with a small mortgage, despite not really needing the loan. And it's these buyers who are likely to be paying off debt now that rates have risen. We estimate these buyers account for around 10-15% of the market and tend to be older owner-occupiers with substantial savings who are approaching the last 10 or so years of their mortgage term.
Prime Central London remains the capital for cash buyers. Here, cash levels are on the rise again reaching 50% this January, the highest share in five years. However, the share of mortgage-free buyers remains lower than it did pre-2016 when the market peaked.
Cash buyer numbers are likely to remain strong throughout 2023, particularly as mortgage-free downsizers cash in on their homes and move to smaller properties in order to save on energy costs. However, 2024 could mark a turning point as first-time buyers make their comeback.
