"The benefits of acting as a cash buyer will be a lot more long-lasting, especially when it comes to high value transactions such as buying property."
While we appear to be inevitably heading towards becoming a ‘cashless society’, the adage that ‘cash is king’ remains crucial in the world of property investment, emphasising the importance of having readily available funds and highlighting the advantages and opportunities that cash buyers possess in the real estate market.
Cash buyers have a significant advantage when it comes to speed and certainty of transactions, being able to, swiftly close deals without the need for financing approvals or delays caused by mortgage processes. In addition, sellers often prefer cash buyers because they can complete the transaction quickly, providing certainty and peace of mind. They can respond quickly to market opportunities, such as acquiring distressed properties and time-sensitive deals, or taking advantage of favourable market conditions. Cash provides investors with the freedom to act promptly and make strategic decisions without being limited by financing constraints.
There’s also the greater negotiation power that cash buyers can have compared to buyers relying on financing. With cash in hand, they can offer quick and attractive deals, such as the ability to close the deal faster or even make an all-cash offer, which can be more appealing to sellers. This leverage often enables cash buyers to secure properties at lower prices or negotiate more favourable terms.
Sellers are more inclined to select a cash offer over a financed offer, as it eliminates potential risks associated with mortgage approvals and the potential for the deal to fall through due to financing issues.
Market opportunities
There are significant opportunities in the market for those property investors who can move quickly. Recently research from Rightmove has identified the challenges in the rental market that are driving some landlords to sell, with 16% of all properties for sale in June coming from the rental market, up from 13% in January 2019.
The data found that concerns about government sentiment towards landlords (47%), rising taxation (41%), increasing compliance requirements (33%) and the rising cost of buy-to-let mortgages (25%) are high on the list for landlords.
Interestingly, 61% of landlords would not buy a property with an Energy Performance Certificate (EPC) rating below a C rating, up from 47% last year, with 33% of landlords who own lower EPC rated properties planning to sell them rather than make improvements to their EPC rating, compared with 20% who planned to sell last year.
Not all landlords are put off by the potential costs of EPC improvements, however, and are also attracted by the prospect of charging higher rents after any EPC-related refurbishment.
In addition, increasing buy-to-let rates are putting extreme pressure on over-leveraged buy-to-let landlords and many are looking for a fast exit from the market, so are likely to favour cash buyers.
Of course, if every buyer was a cash buyer then there would be no advantage; the reason there is a relative benefit is that it’s very hard to be in the situation where you’re not needing to apply for finance when you need money – if accumulating significant wealth was easy almost all of us would do it!
It’s with all this in mind that we offer a drawdown facility for experienced property professionals who are looking to expand, transact at speed, and position themselves as a cash buyer.
Subject to the experience of the borrower and the strength of the portfolio, Mercantile Trust will look to provide a pre-agreed lending limit which can be drawn upon over a maximum term of 18 months (after which the facility needs to be repaid).
In most cases the facility is provided as a first charge bridge on an unencumbered asset up to a maximum LTV of 75% (70% in Northern Ireland) and a ceiling of £500,000. The customer only pays interest on the amount drawn at any time but is subject to a credit review and desktop valuation depending on when the subsequent drawdowns are requested, but this is a lot quicker than applying for a bridging loan, let alone a buy-to-let mortgage!
We also believe it’s the perfect solution for those looking to expand over the course of the year but perhaps have only found the first property.
While we seem to be inevitably moving towards become a cashless society, the benefits of acting as a cash buyer will be a lot more long-lasting, especially when it comes to high value transactions such as buying property. That’s why we expect demand for drawdown to remain strong for years to come.
