Tax rises and slower house price growth have led to a decline in purchases by investors.

The number of homes being bought with cash has fallen to a record low as investors shun the property market. 

Just 29.6% of all transactions in England and Wales were completed in cash during the first half of 2018, the lowest level since records began in 2007, and down from a peak of 37.8% in 2008. 

The value of purchases made without a mortgage also slumped by 21% year-on-year, according to Hamptons International. 

Aneisha Beveridge, head of research at Hamptons International, said: “The proportion of homes purchased with cash has fallen to the lowest level on record.  

“Housing affordability has a role to play in the decline, as does the drop off in investor activity.” 

Why is this happening?

There has been a significant drop in the number of properties being bought in cash by investors, who have been hit by a raft of government tax hikes in recent years. 

Beveridge said: “Increased taxation for landlords and the prospect of weaker future gains has meant that investors accounted for just one in four cash buyers in the first half of 2018, down from one in three in the first half of 2007.” 

The proportion of cash purchases made by developers has also dropped, falling to just 2%, down from 6% in the first half of 2007. 

Who does it affect?

The fall in purchases being made by investors is good news for first-time buyers, as these groups typically chase the same properties. 

But the decline in homes being bought with cash is bad news overall, as these buyers play an important role in increasing the liquidity of the market. 

Cash buyers are also beneficial to property chains, as their purchases are less likely to fall through and tend to complete more quickly, as they do not face unexpected issues in obtaining a mortgage. 

On a regional basis, the south west had the highest proportion of cash buyers, with this group accounting for 37% of all purchases in the first half of the year. 

London, where property prices are highest, had the lowest proportion at just 21%. 

Kensington and Chelsea bucked this trend, with 54% of properties bought in the borough purchased in cash, despite costing an average of £1.4 million. 

What’s the background?

While the number of homes being bought in cash by investors and developers fell, there was an increase in non-mortgage purchases among people buying a home to live in. 

Nearly seven out of 10 cash purchases in the first half of 2018 were homes bought by home-movers, 14% more than in the same period of 2007. 

The group, which analysed Land Registry data, said historically home-movers making a cash purchase tended to be older people down-sizing to cash in on house price gains they had made. 

But it said recent slower property price growth as well as high stamp duty bills had led to a fall in people trading down the property ladder.

Top 3 takeaways

  • The number of homes being bought with cash has fallen to a record low

  • Just 29.6% of all transactions in England and Wales were completed in cash during the first half of 2018

  • The decline is being driven by a combination of stretched affordability and fewer purchases by investors and developers

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