Share of cash buyers falls post pandemic

The UK may have fallen into the deepest recession on record, yet the housing market is booming.  Pent up demand combined with people making lockdown induced lifestyle decisions, all topped off by a temporary stamp duty cut, has made more households make the decision to move.  But our research shows that cash buyers have been slow to emerge since the pandemic.

In Q3 2020, 24% of homes in Great Britain were bought with cash, slightly down from 26% during the same period last year.  And this comes even though more people own their home outright than ever before.  According to the English Housing Survey, 54% of homeowners in England were mortgage-free in 2019, up from 46% in 2009.

So why are cash buyers staying put?  We think the recent shift is due to two reasons.  Firstly, downsizers, most likely to be older age groups who are vulnerable to the effects of covid-19, are remaining cautious.  Downsizers usually buy mortgage-free given the accumulation of equity they have built up in their homes through years of rising prices and paying down their mortgage, often cashing in from the sale of a larger family home.

Secondly, those who are moving for a second, third or fourth time are driving the market now, with the number of home movers that have a home to sell up on last year by more than any other buyer group.  These households have in many cases built up considerable equity in their homes.  While lenders have hiked interest rates on higher loan-to-value deals, they remain at record lows for loans of 60% or less of a home’s value.  These purchasers are taking advantage of these lower rates in order to future-proof their next home.

All this means that on the ground Wales overtook the South West as the region with the highest share of homes bought by cash buyers.  One in three purchases in Wales in Q3 2020 were mortgage-free.  Meanwhile, London has the lowest share of cash buyers in the country – 17% in Q3 2020 down from 19% in Q3 2019. The capital’s cheapest boroughs typically have the fewest cash purchasers in the country. In Barking and Dagenham, just 8% of purchasers have paid in cash so far this year, fewer than in any other Local Authority in Great Britain.

Buyers purchasing homes for less than £250k are more likely than anyone else to be paying in cash, many of whom are investors.  Homes sold for +£1m have gone from being the most likely to have been bought by a cash buyer last year, to the least likely this year.  Last year one in five (20%) buyers used cash to purchase their +£1mil home this year, down from one in three (33%) in Q3 2019.