Cash loses its crown

February 2021

As house prices have risen and with interest rates at record lows, fewer landlords in Great Britain are relying solely on cash to purchase properties.  The share of buy-to-lets bought with cash peaked at 62% in 2017, but the proportion has fallen in each subsequent year since then.  And it appears that the stamp duty holiday has accelerated this trend.

While investor purchases remain low compared with pre-2016 levels, the stamp duty holiday has tempted more small and first-time landlords back into buy-to-let, reversing a shift towards portfolio investors.  Most of these new entrants are relying on a mortgage to fund their purchase, despite the changes to mortgage interest tax relief eating into the profitability of the sector for some.

Back in 2017 62% of landlord purchases were in cash, a figure which fell to 60% in 2018, 58% in 2019 and 52% in 2020.  As a consequence of the stamp duty holiday which came into effect on 8 July, the last six months of 2020 saw the proportion of cash buying landlords fall to just 50% - a record low - as new investors took advantage of the holiday savings.

Across 2020 as a whole, cash landlords spent a total of £11.7bn on new buy-to-let purchases, £1.5bn less than in 2019 and down from a record £19.8bn in 2015.  To put this figure into context, first-time buyers bought £65bn worth of property last year.

Landlords buying in Great Britain’s least expensive regions remained most likely to fund property purchases in cash during 2020.  Almost two-thirds (65%) of buy-to-let purchases in Wales were in cash.  They were followed by investors from the North West (64%) and the North East (61%).  The proportion of landlord cash purchases fell in 10 out of 11 regions in Great Britain between 2019 and 2020.

In contrast, investors in the most expensive regions of the country were most likely to rely on mortgage finance.  Just 39% of London landlords and 45% of those in the South East paid cash for their buy-to-let last year.