© Stephen Collins
A few miles inside Cannes, on the French Riviera, the hilltop town of Mougins has become a popular destination for affluent Parisians and those from abroad looking for a home to enjoy the summer holiday season. But buying agent Tim Swaney recently negotiated a €300,000 discount off the €2.9 million sale price of a house in the village on behalf of a client who was buying in cash.
Swany says the seller rejected a mortgage offer of €2.8 million a few weeks ago, but despite advertising the house extensively he hasn’t received any further offers, and he is getting worried. “By now, the house had been on the market for about five months, during which time mortgage rates had increased: our client had the cash and was keen to complete it as quickly as possible.”
Without the delays and uncertainties associated with securing a mortgage, cash has long provided an advantage to home buyers around the world. But with today’s high mortgage rates increasing the likelihood that a mortgage application will be rejected or a potential buyer will decide they can’t afford the monthly payments, cash has a new level of power.
In Manhattan, the number of cash purchases as a proportion of all transactions has hit a new record over the past three quarters, and now stands at 65 percent, according to estate agent Douglas Elliman. In France, mortgage buyers have largely abandoned the market: according to the Banque de France, new mortgages of €1.05 billion were granted in June, less than a sixth of the €6.76 billion a year earlier. In the UK, property portal Zoopla estimates that mortgage-backed sales will fall by 28 per cent this year, while cash sales will fall by only 1 per cent.
“If we had a mortgage or property to sell, we would not be at the table; Instead, we’re at the front of the queue,” says UK buying agent Henry Pryor, whose client has just received his cash offer – £25,000 off the £650,000 asking price – for a three-bedroom maisonette in west London Accepted on a rival offer from someone with a mortgage that is higher.
The median sale price in Manhattan to fall 6.1 percent in the first half of 2023 © Ryan Debardinis/ Alamy
Increasing discounts for cash buyers. In the three months through June in Miami Beach, the average discount on a home bought for between $2 million and $5 million in cash was 8.1 percent, up from 5.2 percent a year earlier, according to Miller Samuel. During that period, in April, a cash buyer bought an apartment there for $4 million — $1.2 million below list price.
Between February and July of this year, Claudia Garcia made 10 offers for homes in Miami that were unsuccessful—she estimates that in about half of those cases, she lost out to buyers who had cash. “There was a perception that if they had cash offers, buyers would not even look at our offers,” she says.
Others are giving cash to buyers before the homes are even advertised. In March, when Sammy Scoffam and her husband were looking to buy a house in Port Grimaud next to St Tropez on the French Riviera with cash, a local agent alerted them to a one-bedroom flat that had yet to be sold. was also not listed in the list. Website or actively marketed, For Sale at €395,000. The couple’s offer of €385,000 was immediately accepted before anyone else had even seen the house; The seller then helped speed up the purchase process, which was completed in June. “The fact that we were cash buyers was definitely part of the momentum,” says Scoffheim.
In the UK, where new borrowers must prove they can afford mortgage payments at rates close to 8.5 per cent, 34 per cent of UK homes sold so far this year were bought in cash, up from the same period in 2022. 30 percent more than according to Hampton.
Cash is especially beneficial in a probate sale, where executors are less dependent on home value expectations based on past price levels — a significant handicap in the current market, according to Pryor. In South London, one of his clients has accepted an offer at a probate sale – where the executor, the children of the deceased owner, are also the beneficiaries – for £2.1 million in cash. “The house was listed in February for £3 million, then reduced to £2.5 million,” he says. There was at least one higher non-cash offer, but for the sellers ” All they get is profit”.
Cash buyers come without the uncertainty of securing finance at a time when falling prices mean sellers get less to put a home back on the market after a slump in sales. According to Nationwide, UK house prices fell by 3.8 per cent in the year to July, the biggest drop since 2009. According to Douglas Elliman, the median sale price in Manhattan fell 6.1 percent in the first half of 2023 compared to a year ago.
Sammy Scoffham’s cash offer, pictured in Italy, was immediately accepted. , , , , , At Port Grimaud, near St Tropez in the French Riviera © Alamy
In France, sellers may be particularly exposed. Typical contracts give buyers up to two months to arrange a mortgage, but are under no obligation to complete the purchase, or lose their deposit if they cannot obtain a mortgage; Sellers are legally bound to hold the sale until their buyer moves out, and they cannot show the house to anyone else during this period.
“There’s been a significant increase in the number of deals that don’t happen because mortgages aren’t approved,” says Swaney.
Fiona Watts of International Private Finance, a company that arranges mortgages for British buyers of European homes, says: “Obviously, sellers are not going to wait two months to learn that their buyer cannot obtain finance and the sale fails. She goes.”
Even when mortgages are approved, down-valuation – where banks reduce the value of the home to less than what the buyer paid for the mortgage purchase – has become increasingly common in many places is – from which buyers are exiting.
“In London and the South, sales agents are now particularly fearful of agreeing a deal on the basis of a mortgage whose valuation is well under the price that has been agreed,” says Pryor.
In Miami, Garcia’s mortgage lender valued the house below the $500,000 she had agreed to pay, and she had to find additional cash to cover the difference.
David Ravitz, a Florida luxury agent, estimates that one in five home sales decline because of such down-valuations, or because there is a gap on an available mortgage between agreeing an offer and securing a mortgage. A rise in rates means buyers move out. “A year ago, it was maybe one in 20.”
In some cases, even cash purchases are now more attractive to buyers.
Liam Wilkinson arranges mortgages for non-EU residents to buy homes in Europe – mainly France, Spain and Italy. For homes priced above €3 million, their clients traditionally prefer private banks in places such as Monaco or Luxembourg, which offer better rates and are more willing to lend to them than domestic banks. Are.
Guy and Cara were concerned about the terms attached to the French loan when buying property in Norfolk’s Isle de Reyes
These private banks support high loan-to-value mortgages, in some cases up to 100 percent of the home’s value, taking other assets, usually investment portfolios, as security for the loan, which the bank has agreed to as part of the agreement. Will manage , In this way, the bank secures an additional source of income while building a closer relationship with the customer to sell additional services in the future.
But 2022 was a tough year for stock market returns, with the MSCI Europe index down 15 percent. Wilkinson says his clients are choosing to sell their property to pay some or all of the purchase money in cash because, with mortgage rates high, it seems like the safest bet.
“It is very hard for private banks to beat the cost of debt with their investment returns, after applicable taxes and private banking charges. Also, in 2022, European private banks are expected to experience significant pain in their clients’ investment portfolios,” he says.
Tighter terms from mainstream domestic banks are also pushing foreign buyers towards cash. According to Watts, in the past year, the range of mortgages available to non-resident buyers in France has declined.
Foreign buyers considering borrowing from local banks, where mortgage rates can be lower than domestic banks, are discouraged by strict terms.
When Guy and Cara Norfolk, who live in the UK, were looking for a home in Isle de Reyes, France, French mortgage rates, which are lower than in the UK, made the mortgage attractive. But the loans came with tough terms. The couple would need to form a French company through which to purchase the home; The second would require them to buy life insurance and deposit a large sum of money into the mortgage provider’s Euro bank account.
“And the level of checks from the mortgage company was extraordinary,” says Cara, referring to a contract that the mortgage bank called for a car that the family leased at a cost of £500 a month. “They wanted to check every single item of our monthly expenses.”
Claudia Garcia and family make multiple offers for homes in Miami that fail In Miami, the average discount on homes bought with cash is on the rise © Shutterstock/Ivan Cholkov
In the UK, data from the Financial Conduct Authority shows new mortgage lending fell by 41 per cent in the first three months of the year compared to a year earlier. According to the Bank of England, net mortgage approvals fell to 49,400 in July, down 22 percent from July 2022. This keeps the cash buyer firmly in the driving seat. Hampton says they account for 22 per cent of sales in London so far this year, up from 17 per cent in the same period last year.
In March, Suzy, who was looking for her first home, found her favorite home on the north London market for £325,000. There was a rival bidder who had cash; The two had raised their offer to £350,000 when Suzy, who asked not to use her real name, decided to touch their hearts.
She says, “I told them in an email how desperate I was to find a place, how I would look after the house and why people like me have the opportunity to buy a house in London when we are competing with cash buyers. How unlikely is that.”
To her surprise, the appeal worked and her offer was accepted – a move she attributes to their emotional investment in the house as well as shared concern about London’s rising housing costs. “He raised a young family in this flat. I think they agreed with me that London was being ruined by cash buyers and oligarchs,” she says.
“But obviously I am incredibly lucky, most people would not have sold me. I don’t think you should write letters like this to get home.”
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