The Council of Mortgage Lenders (CML) has shown that an increasing proportion of house sales are completed to cash buyers. In figures that it has recently compiled, 40% of homebuyers in January 2011 did not need a loan to buy their property. This means that the proportion of cash buyers has more than doubled since records began in 2005. Does this mean that the housing market is now becoming the domain of the cash-rich with many other buyers being shut out?
Estate agents have indicated that in some areas the proportion of cash deals may be even higher than 40% with the south-west of England and London being highlighted. These cash buyers are apparently made up mainly of “the Saga generation”, i.e. people who are downsizing and pocketing a profit from the previous housing boom. Cash buyers also include divorcees benefiting from financial settlements, foreigners coming to the UK and expats coming back to the UK. Another reason for these cash sales is investment; compared to woeful interest rates in a bank account and a turbulent stock exchange, property is looking like a safe bet.
With lenders loan criteria having been very tight for a few years now, cash buyers have become an increasingly big force in the market. In April 2005, when CML figures began, 16,457 homes were bought without loans – 15% of the total market. In January 2011 there were 27,600 cash transactions – 40% of the total market.
The increased proportion of cash-buyers has a positive effect on the housing market as there is no risk of default on the slice of the market that’s not dependent on debt. However, it has a negative effect on the population as a whole by making the housing market more socially divisive, as those without access to family money are squeezed out.
Although the Government is apparently on the case to help first-time buyers with the First Buy scheme – it doesn’t seem to be having much effect. Under the scheme the Government and house builders offer loans to help first-time buyers get into new builds. However, lenders remain under conflicting demands; they are currently facing calls to make mortgage lending more accessible whilst also being told to lend more responsibly. Could we be finally looking at a sea change in which the way Britons view home ownership? In 2004, the proportion of people actually owning and living in their own home was 71% - this fell back to 67% last year.