Cash is King

by Mark Johnston

The Council of Mortgage Lenders (CML) has reported that during January close to 40 per cent of buyers bought their home with cash and didn’t require a mortgage at all.  There seems to be a rise in the portion of home buyers who have begun to buy their homes in cold hard cash. 

Since records first began to record this statistic in 2005, there appears to be a more than doubling in the number of buyers who are using cash instead of turning to lenders for large and expensive mortgages. 

Chief executive of Chesterton Humberts estate agency, Robert Bartlett, has commented that the level of cash dealing in the market is at a historic high.  Robert went on to say “In certain regions, the proportion of cash buyers will be even higher than these figures suggest,” he says.

“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%,”

This recent increase in cash buying has been attributed to “the Saga generation” according to housing expert Henry Pryor, who went on to say “They are downsizing and pocketing a profit from previous housing booms, divorcees benefiting from financial settlements and foreigners or expats returning to the UK,”

The trend is increasing because cash rich buyers see the housing market as an investment that is practical too.  They can literally live inside their investment.  Mr Pryor says that “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 the two ugly sisters – leaving property as the Cinderella of the investment world,”

As lenders, banks and building societies have become increasingly tight with the amount that borrowers can lend, the criteria under which they can lend and the rate at which they can lend, cash buyers have increasingly become a more powerful force in the market.  In April 2005, when the first records began recording details of cash transactions, there were 16,457 homes sold for cash, about 15 per cent of the market.  Today, well January 2011, the figure is closer to 27,600 cash purchases, equating to a near 40 per cent rise in transactions.

The mortgage broker from John Charcol, Ray Boulger says that the increase in cash purchases can be both a positive movement and a negative one.  “If there’s cash coming in, no matter where it comes from, it will support the market,” Mr Boulger says.

“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%.” Going on to say that the increase will further divide the classes and that “Those without access to family money will be increasingly squeezed out of the market if this continues,”

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