Cash buyers now make up 40% of the UK housing market
The Council of Mortgage Lenders (CML) has this week released figures showing that, as of January 2011, almost 40% of house purchases did not require a mortgage as the buyer paid cash. This represents a huge rise in the proportion of cash purchases since before the current crisis began.
In fact, the figures show that the proportion of cash buyers has more than doubled since 2005, when the records began. This in turn suggests the market is increasingly the domain of the cash-rich, with many other buyers shut out.
In certain regions, the proportion of cash buyers will be even higher than the CML figures suggest. For example, in south-west England, I would say it is probably more like 50 to 55%. In some areas of London, it can be up to 80%.
The people driving this trend are “typically the Saga generation”, according to independent housing experts. They are downsizing and pocketing a profit from previous housing booms, divorcees benefiting from financial settlements and foreigners or expats returning to the UK.
Many analysts believe that cash buyers are investing in property because they see it as one of the few investments which they can make money from and use at the same time. Putting the money in a bank account may be safe, but you will get a woeful return on it, while stocks and shares look like risky investment options at the moment. This leaves property as the safe haven of the investment world.
The CML estimates the total number of cash buyers in the market by comparing its own lending figures with those from HM Revenue and Customs (HMRC), which records the total number of house sales over the same period.
This analysis shows that the total number of cash deals has been rising sharply since 2005.
As lenders have tightened their loan criteria and asked for bigger deposits from borrowers, cash buyers have become an increasingly big force in the market.
In April 2005, when the figures begin, 16,457 homes were sold to cash buyers, equivalent to 15% of the market. In January 2011, the latest figure, there were 27,600 cash transactions, equivalent to nearly 40% of the market.
The increase in cash transactions has both positive and negative implications. If there’s cash coming in, no matter where it comes from, it will support the market. And if you have a bigger slice of the market that’s not dependent on debt, there’s no risk of default on that 40%.
However, it will also mean the social divide is significantly increased. Those without access to family money will be increasingly squeezed out of the market if this continues.
The government says it recognises the problem and is taking steps to help. It cites the new First Buy scheme, under which the government and house builders offer loans to help first-time buyers purchase newly built homes.
However, conflicting demands on lenders mean those looking to borrow to get on to the housing ladder are unlikely to see a significantly easing in credit conditions soon. There may be calls for increased mortgage availability, but at the same time, regulators are calling on lenders to hold more capital and be more risk-averse.
