Cash buyers drive sales and prices in UK housing boom

Cash buyers of UK homes spent one-third more on their property purchases in the year to March than in an average pre-pandemic year, analysis has found, underlining the role of mortgage-free purchasers in driving the property boom.

There were 482,000 cash buyers in the year to March 2022 and they spent £178bn buying homes — 17 and 32 per cent higher than the three-year average before the pandemic respectively — according to research by estate agent Savills.

Lucian Cook, head of residential research at Savills, said the proportion of cash buyers in the market might have been expected to fall in the past year, since home loan rates remained at historic lows and drove demand from mortgaged buyers. But the share of cash buyers remained unchanged at about 35 per cent of the market, and the average cash buyer bought a home valued at £368,600, compared with spending of £302,500 by the average mortgaged buyer.

Cash buyers include people who sell one home to buy another, without taking out a mortgage, and those who buy without a prior sale, using cash.

The prospect of further rises in the Bank of England’s main interest rate — after it hit 1 per cent this week — means mortgage applicants may find they are able to borrow less, and will pay more for it in higher rates set by lenders.

“I suspect the market is going to become even more reliant on cash buyers over the next 12 to 24 months, given that they are less exposed to interest rate rises and, as more affluent households, are often slightly less exposed to the cost of living squeeze,” Cook said.

Mortgaged buyers will become more conscious of the cost of servicing their debt and less aggressive when competing in the housing market, he added. “Lenders are going to be looking much more closely at mortgage affordability when they’re judging mortgage applications . . . It’s inevitable that the market is going to become more weighted towards cash buyers.”

Prices are continuing to climb, according to the Halifax house price index, which found they were growing by an annual 10.8 per cent rise in April. But Cook said price growth was likely to slow in the remainder of 2022 as mortgage interest rates edged up.

The analysis, which drew on data from the Office for National Statistics and Land Registry, also identified boroughs where the proportion of cash buyers was strongest.

In second-home hotspots in rural or coastal locations such as North Norfolk, West Devon and the Isle of Wight, more than half of buyers were mortgage-free, while most boroughs in London, with the highest house prices in the country, had the lowest proportion of cash buyers at around 15 per cent. In Kensington and Chelsea, however, an area popular with wealthy overseas buyers, 48 per cent were cash buyers.

Cook found a “reasonable correlation” between the proportion of the population over the age of 60 and the share of cash buyers in a location. In local authorities where more than half of buyers were mortgage-free, more than one-third of the population was over 60. In boroughs where cash buyers accounted for less than 15 per cent of transactions, it was 16 per cent.

The over-65s’ share of mortgage-free households in England has risen over the past decade, compared with all other age groups, according to ONS data.

One reason that the power of cash buyers is set to become stronger is that the prospects for first-time buyers are worsening. They face higher house prices, more expensive or restricted mortgages and a cost of living squeeze. Help to Buy, the government’s equity loan scheme for first-time buyers, is also due to end in March 2023.

“The goal of home ownership is going to become that bit more difficult,” Cook said.