Cash vs mortgage buyer

danadanny

Hi,
I have two offers for my property. One is a cash buyer and the other requires a mortgage. The difference between the two offers are £600, cash buyer's offer the lower of the two.

On paper, the cash buyer option sounds more appealing. Are there any pit falls with choosing a cash buyer over one that requires a mortgage?

Kynthia

Cash buyers sometimes think they are more valuable to you and therefore act as if they have the power or the advantage. They are more able to pull out of a purchase without as much cost to them compared to someone who's arranging for a mortgage. Also it's easier for them to ask for a last minute price reduction as they don't have a mortgage that would need altering.


Unless your mortgage buyers are first time buyers with a small deposit and therefore are at a greater risk of not getting a mortgage after you've proceeded with the sale and potentially your onward purchase, I would not value a cash buyer over a mortgage buyer. Also mortgage purchases can take longer as some lenders take 6 weeks to have an offer finalised and only then will searches begin.


I personally believe a chain free buyer can be more valuable as the longer a chain the more likely there will be delays or it will collapse. So are either or both of your potential buyers selling a property?

danadanny

Hi Kynthia,
Thanks. Wouldn't the price reduction applicable to mortgage buyers too although it won't be last minute?


Both potential buyers are chain free although I am awaiting confirmation if they are first time buyers.

G_M

Define 'cash buyer'!

a) Buyer does not need a mortgage, but will be selling their current property to raise the cash, thus in a chain.

b) Buyer has cash in the bank and no current property to sell, thus no chain.

c) Buyer does not require a mortgage nor will be selling a current property

(note - I'm not asking what people here consider the correct definition; I'm asking the OP which applies to his 'cash buyer.)

danadanny

G_M wrote: »

efine 'cash buyer'!

a) Buyer does not need a mortgage, but will be selling their current property to raise the cash, thus in a chain.

b) Buyer has cash in the bank and no current property to sell, thus no chain.

c) Buyer does not require a mortgage nor will be selling a current property

(note - I'm not asking what people here consider the correct definition; I'm asking the OP which applies to his 'cash buyer.)

What's the difference between B and C?

I asked if both are chain free and the answer is yes, both chain free.

G_M

danadanny wrote: »

What's the difference between B and C?

I asked if both are chain free and the answer is yes, both chain free.

Errr.... nothing!

Re-draft :

b) Buyer has no property to sell, so chain-free, but will require a mortgage.

Sorry!

JimmyTheWig

danadanny wrote: »

Hi Kynthia,
Thanks. Wouldn't the price reduction applicable to mortgage buyers too although it won't be last minute?

Offer to buy a house for £200,000.
Mortgage company values it at £200,000.
Mortgage is drawn up based on a purchase price and value of £200,000.

Buyer decides at the last minute that he doesn't want to pay £200,000 for it. He only wants to pay £195,000.
You don't want the hassle of finding another buyer and (potentially) losing the house you are buying so agree to his blackmail.

At which point the mortgage company says if he is only paying £195,000 then it can only be worth £195,000.
A new mortgage needs to be drawn up based on a purchase price and value of £195,000.
This takes time, so isn't particularly practical.

If it was a cash buyer it would just be a case of a phone call to the solicitors to say there has been a change of price and job done.

danadanny

JimmyTheWig wrote: »

At which point the mortgage company says if he is only paying £195,000 then it can only be worth £195,000.
A new mortgage needs to be drawn up based on a purchase price and value of £195,000.
This takes time, so isn't particularly practical.

What do you mean "isn't particularly practical"?

JimmyTheWig

danadanny wrote: »

What do you mean "isn't particularly practical"?

Cash buyer says: "I know that everyone else is ready to exchange today, but I've changed my mind about the purchase price and want to drop £5k. If you agree we can all exchange today as planned."
Vendor says: "Grrr. I'm very cross but I have little option but to agree."

Mortgage buyer says: "I know that everyone else is ready to exchange today, but I've changed my mind about the purchase price and want to drop £5k. If you agree we can all wait for me to get a new mortgage offer, which could take a couple of weeks, then exchange."
Vendor says: "Don't be so silly. We're ready to exchange now. If we delay a couple of weeks there could be other problems in the chain. Plus if you're messing me around at this point in time, what's to say you won't do something similar in the future if we don't exchange today? I'd rather pull out now and be two weeks ahead of myself in finding someone else than wait two weeks for you to try something else."

That's what I mean by not particularly practical.
Yes, the mortgage buyer can do it. But the vendor is much less likely to agree.

Kynthia

danadanny wrote: »

Hi Kynthia,
Thanks. Wouldn't the price reduction applicable to mortgage buyers too although it won't be last minute?


Both potential buyers are chain free although I am awaiting confirmation if they are first time buyers.

Yes a buyer getting a mortgage can renegotiate the price. However they are much less likely to do it right near exchange when you feel you have no choice but to accept without wasting months and risking your onward purchase (gazunder img). This is because any change needs to go through their lender, paperwork needs redoing which takes time, and if the lender decides to consider it a new application there is a small risk of a new fee, a new credit check (which they might fail) or lending criteria may have changed and they no longer qualify so don't get a mortgage or the rate they previously had.

As I said I would only value a cash buyer over a mortgage buyer if I really needed a quick sale, and only if I'd confirmed that they had the cash available in their bank and weren't selling somewhere (which can be delayed) or were getting it from family (which can be delayed or fall through). Unless I suspected the mortgage buyer may be at risk of not getting a mortgage I would consider other factors when choosing who's offer to accept.

bagpussbear

I sold my flat a couple of years back to a 'cash buyer'. He said he could move quick.

Turned out to be nothing of the sort.

He messed us around for weeks. Turned out he saw another flat in my road so decided he wanted that as well (he wanted to buy both flats to let them). Tried to keep that a secret for as long as he could. So he decided to put the cash towards his other purchase and then to get a mortgage on my place which delayed things for ages.

It's made me very wary of cash buyers. In your position OP I'd ask more questions from both people that have offered, and then go with your gut instinct!