New research has highlighted the swing in buying power away from those backed by a mortgage in the current environment of rising interest rates.
Analysis from Octane Capital revealed that, while it is normal for cash buyers to seal deals at a lower price than those using a mortgage, the gap between the two has widened as interest rates have risen, suggesting cash buyers are now in a stronger position.
Specifically, in June 2023 cash buyers sealed deals for £27,600 less than those using a mortgage, compared to a difference of around £23,600 in December 2021, before the Bank of England made the first of its 14 consecutive interest rate increases.
However, while mortgage holders are subject to rising interest rates and higher prices, the sector has remained busy. Some 69% of purchases were made with a mortgage across Great Britain between December 1st and April 2023 , more than two thirds the overall total.
The regional picture
Property purchasers using a mortgage buy at a higher price in every region of Great Britain, with the exception of London.
Mortgaged buyers in the North West pay the biggest premium in terms of price, as they typically pay £31,100 more than their cash buyer counterpart, with a purchase price of £226,000 compared to £195,000.
Those using a loan similarly pay £27,600 more in the South East, with an average offer of around £401,000 compared to £373,000.
Meanwhile there’s a gap of £23,200 in the North East, where mortgaged buyers pay £169,000 and cash purchasers typically buy for £146,000.
The gap in price between cash purchases and mortgages has widened over the 20-month period in every region outside of London.
In the capital, purchases with cash typically cost £26,500 more, the opposite trend to the rest of the UK.
“It’s always been easier to buy with cash than spend time arranging a mortgage, but in the current environment it seems that advantage is bigger than ever, with cash buyers saving £27,600 compared to their mortgage counterparts,” said CEO of Octane Capital, Jonathan Samuels:
“Mortgaged buyers are subject to more processes and delays, making it hard to compete with those who can swoop in with an immediate lump sum of cash.
It’s also far tougher to qualify for a loan than in late 2021, as surging interest rates make it harder from an affordability perspective, so buying with a mortgage is not an easy task.”
