Cash buyers slow to emerge in pandemic housing market

The share of cash buyers in Britain’s housing market has slipped during the pandemic, even as tighter lending restrictions and a fast-moving market have favoured mortgage-free purchasers.

Some 24 per cent of homes in Great Britain were bought for cash in the three months to September, declining slightly from 26 per cent over the same period last year, according to research by estate agent Hamptons International. 

The pandemic has put the UK into recession but the housing market is undergoing a boom in activity, with prices rising since lockdown restrictions were relaxed in May and buyers hurrying to capture a temporary stamp duty holiday due to end in March 2021. 

Aneisha Beveridge, Hamptons research director, said the cash figures were surprising in view of the growing role of equity-rich homeowners in the market. The share of people who own their own home outright has been rising steadily over the past decade. Among homeowners in England, 46 per cent owned without a mortgage in 2009, according to the English Housing Survey. In 2019 the figure had risen to 54 per cent. 

“Theoretically there are more cash owners out there but that’s not translating into cash buyers in the market at the moment,” Ms Beveridge said.

Hamptons said two factors were likely to explain their softening share. First, downsizers often buy without a mortgage, since they will buy a modest retirement property from the sale of a large family home. Ms Beveridge said the prospect of a stamp duty holiday might have been expected to appeal to buyers in this category, since previous research had shown the tax charge made them more reluctant to move. 

However, they were also more likely to be in older age groups more vulnerable to Covid-19, she added. “They might be shielding or deciding to stay put and be cautious about what they do on a daily basis. The research suggests they aren’t the people making big moves at the moment.”

A second group strongly represented among the current wave of buyers is home movers — those who may be buying a property for the second, third or fourth time but who have built up equity in their property in recent years. Their appetite to move has been sharpened by the experience of homeworking during lockdown and the stamp duty holiday. 

However. where homes might normally have been bought for cash, the need to “future-proof” their purchase with a larger or more comfortable home, combined with historically low interest rates on mortgages, have tempted some to use a home loan to fund a more ambitious purchase, Hamptons said. 

“Some of them would have been cash buyers in the past, but today they are choosing to take out a small mortgage because interest rates are so low,” said Ms Beveridge. 

Mortgage lenders have been raising the drawbridge to borrowers seeking higher-risk home loans or to those with uncertain income prospects. But for borrowers with high levels of equity, banks and building societies are open for mortgage business. “It’s those sorts of buyers who are driving the market at the moment,” she said. Mortgage approvals hit a 13-year high in September, according to data published on Thursday by the Bank of England.

The Hamptons research, based on data from the Countrywide estate agent group, also looked at the regional split of cash and mortgaged buyers. In London, where average house prices are more than double the UK average, just 17 per cent of homes were bought by a cash buyer in the third quarter — the lowest share on record.

Last year, homes selling for £1m or more were the most likely to have been bought by a cash buyer, with 33 per cent going to mortgage-free buyers. In the third quarter of this year, they were the least likely, with the share falling to 20 per cent, the lowest proportion in any third quarter recorded by Hamptons.


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