According to recent figures, cash buyers are a more significant driver of housing market dynamics in comparison to ten years ago.
Nationwide data reveals that cash transactions made up around 20% of all transactions in 2005/06, a share which grew to just over a third (35%) in 2008. Since then it has remained reasonably constant, although in Q1 of 2016 reached a record high of 38.9% before falling again in Q2.
This is largely down to the growth in stamp duty being brought in from April, encouraging purchases to be brought forward in order to avoid the additional tax. Of these, a large proportion are likely to have been made using cash.
The findings from Nationwide were calculated by looking at the number of residential and buy-to-let mortgage transactions and subtracting them from the number of reported HM Revenue and Customs housing transactions.
Commenting on the figures was Robert Gardner. The Chief Economist at Nationwide highlighted low-interest rates and the UKs ageing population contributing to the rise in cash transactions.
“The sharp increase in the share of cash purchases in 2007 and 2008 was a function of mortgage transactions declining sharply, rather than the amount of cash transactions increasing.
“This reflects the impact of adverse labour market conditions and the tightening of credit conditions during the financial crisis, which limited the number of people able to buy with a mortgage, while fewer such constraints would have applied to cash purchasers.
“However, it is interesting that the share of cash transactions has not fallen back as the economy has recovered. Part of the reason is that mortgage market activity has increased only modestly and remains some way below the levels recorded in the mid-2000s.
“The low-interest rate environment at home and abroad has also continued to support the flow of cash into other asset classes, including UK residential property.
“Demographics is also playing a role in boosting the number of cash transactions. As the UK population ages, so the proportion of people who own their home outright has increased, and when these people transact – for example, moving home or downsizing – they are more likely to do so in cash. Indeed, the number of people in England who own their home outright overtook those who own with a mortgage in 2014.
“Interestingly, the data suggests that the share of cash purchases in London is below the UK average. On the surface, this may seem surprising, given the greater involvement of investors (domestic and overseas) in the London property market.
“The fact that house prices in the capital are more than double the level prevailing in the rest of the UK (£473,073 versus £205,937 in Q4 on our measure) presumably acts as a limiting factor.”