The Rising Trend of Mortgage-free Buyers

One in four buyers now purchases property without a mortgage.

We look at why paying cash is on the rise and what it means for the property market here in Sydney’s inner city and inner west.

The rise of the ‘cash buyer’

Recent research brings to light some startling figures about the number of buyers who don’t need a mortgage and are able to buy in cash.

A 2023 PEXA report revealed more than one in four properties sold in NSW, Queensland, and Victoria was paid for in cash.

It also showed that the proportion of cash buyers had risen 1.5%, year-on-year.

In our experience, this growing group of cash buyers is made up of particular demographics.

Many are prestige buyers. After all, few people take out an 80% mortgage on an $8 million home. In this category, we’re talking about the kind of luxury residences that break suburb
records here in the inner city and inner west.
Retirees and older downsizers, many of whom have paid off the family home and are moving to the inner city.
Younger, affluent owner-occupiers - some of whom got on the property ladder early and may have paid off their mortgage.
Expats and international investors capitalising on exchange rates.
People of all ages relocating from a more expensive area or selling a larger property.

What impact do cash buyers have on the property market?

Cash buyers don’t need a mortgage, so perhaps their biggest impact has been dampening the effect of rising interest rates or any tightening of lending requirements.

Cash buyers also tend to move faster than the average buyer because they don’t need to rely on lender approval. This can give them a real advantage in an already competitive market.

A lot of sellers also see cash buyers as the best type of buyer. That’s because the sale is less likely to run into any hiccups or fall through, as finance won’t be a problem.

How many cash buyers are there in the inner city and inner west?

In particular suburbs of Sydney, including Sydney city, Darling Point, Potts Point and Milsons Point, more than 50% of buyers now pay cash.

According to PEXA’s Buyer Report, Waterloo tops the list for cash buyers in our part of the world, with 42.9% of buyers paying cash. That puts it ninth in all of Sydney. Yet, according to the last Census, only 6.2% of dwellings were owned outright in the suburb.

We attribute some of the action from cash buyers to new developments being sold off the plan. This typically attracts both investors and overseas buyers, a higher proportion of whom pay cash.

The 2021 Census reveals that in Erskineville and Alexandria, people are still more likely to be paying off a mortgage than they are to own a home outright. In these two suburbs only 12.6% of properties are owned outright, which is half as much as the state (31.5%) and national (31%) averages.

Around 33% of people currently own their property with a mortgage - roughly the same as the state and national figures.

Meanwhile, more than half of all dwellings (52.8%) are rented - well above both the state average of 32.6% and the national average of 30.6%.

So, what does the average mortgage look like?

If one in four people doesn’t need a mortgage, logic says three-quarters - or the vast majority - still do.

People generally don’t like being in debt. However, mortgages are often viewed as positive debt because property tends to appreciate in value over time.

Most home buyers go into a mortgage hoping to be completely debt-free (and financially secure) at the end of their 25 or 30-year term. And many people work hard to pay it off sooner.

So, what would your mortgage look like if you took one out to buy local property in 2024?

The median apartment price in Alexandria is $888,000, according to realestate.com.au.

If you bought this with a 20% deposit, or $177,600 the balance would be $710,400.

Assuming you financed this with a 25-year principal and interest for the average owner-occupier interest rate (currently 6.21%), your monthly repayments would be $4,679.

You’d also need to account for stamp (transfer) duty and other upfront costs, such as legal or conveyancing fees.