Understanding cash buyers

Where do they come from, what do they buy, and just how many transactions do they account for?

Some fascinating new insight into a much-misunderstood sector of the market – cash buyers – has revealed some big shifts in behaviour since the financial crisis.

Despite what you may have heard, the majority of cash buyers are not snapping up small London homes to rent out, says Hamptons International; nearly 70% are owner-occupiers, and most are cashing in on their housing equity growth, moving to medium-sized homes somewhere close to where they already live.

The proportion of cash buyers, which stood at around 23% of all transactions pre-2008, had risen to 29% by 2010 as banks became seriously risk averse and reined back on their lending. Mortgage transactions were hit super-hard – plummeting 59% between 2007 and 2008 – while cash buyer numbers fell by “only” 32%.

Over the course of the following four years, cash purchases grew by 10% each year, while mortgage ones went up by 6%; the peak came in 2014, with 366,000 cash transactions representing almost a third of the total number.

The last two years have seen a marked shift the other way, leading Hamptons to muse on whether we could be seeing “the end of the cash era”. In Q3 2016, there were 92,850 sales to cash buyers in Great Britain – a 5% fall on the same period last year – although the market share still stands at around 30% as mortgaged purchases fell back.

Pricer regions in the South saw the biggest falls (South East: 13%; East: 11%; and London: 9%), whilst the North West and East Midlands saw numbers rise by 14% and 2% respectively.

Things get really interesting when the team drills down further.

In stark contrast to the rest of the country, the proportion of cash buyers from London purchasing a home in the capital has tumbled by 14%, from 56% in 2010 to 42% in Q3 2016. Hamptons say this is down to rising house prices curbing the ability for many to buy homes debt-free, along with falling yields and lower expectations of future capital growth.

Meanwhile, 83% of cash buyers in the North bought in the same location, a 9% increase from 2010, while 76% in the West Midlands did, a 6% increase.

Nationally, 78% of cash buyers in Q3 2016 bought in the same region they came from – a 4% fall on 2010.

So where are London-based cash buyers choosing instead?

The East used to be the most popular destination (19% bought there in 2010), but this has now fallen to 12%. The South West and South East are proving popular these days, with the proportion increasing by 7% and 2% respectively. The North has seen a 7% rise.

Fionnuala Earley, Director of Residential Research at Hamptons International: “The number of cash buyers in Great Britain fell by 5% broadly in line with the overall change in all transactions. But they are still an important part of the market, accounting for 30% of all transactions.

“There are signs that the behaviour of cash purchasers is changing. In 2010 82% of cash buyers in Great Britain bought within their home region, but this fell to 78% by 2016. With the exception of the North and West Midlands regions, cash buyers are increasingly looking further afield, particularly those in London. Less than half of London based cash buyers now buy in the capital.

“High house prices and lower expectations of future price growth, along with lower yields for those buying to rent out, suggests they are searching out better value for money. That is especially true for higher value or second homes where the effects of higher stamp duties are taking their toll.”