People sometimes decide that it’s time to move to a smaller home if they are elderly and struggling with the upkeep of a larger home, or perhaps after their children have left for University. This is called downsizing, and means that they are less likely to need a mortgage for a smaller property so often pay outright with cash from their larger house.
According to the Financial Times, the percentage of homes in the UK purchased with cash fell to the lowest it’s been since 2007.
The first half of 2019 saw the proportion of homes bought without a mortgage drop to 28%, 5% lower than the same period of time in 2017. In comparison, 36% of homes were purchased without a mortgage ten years ago.
This drop in cash buyers was apparent everywhere in the UK, but the largest decrease was in the West Midlands where there was a 9% fall compared to the same period in 2017. London was hit the second hardest with a 7% fall. However, the least impacted was Scotland with a fall of only 1% compared to 2017.
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What is the cause?
House prices are naturally a large influencer to the proportion of people who buy for cash. Prices have risen 1.4% in the first 6 months of 2019 compared to those in 2017. The drop in outright house purchases shows how people are struggling to afford them, as well as downsizers not moving.
Despite London being the second largest hit by decreases in cash purchases, house prices have actually dropped here. At the beginning of 2019, the average price of a property in London was £489,820, but at the start of 2017 it was 3.6% higher.
Who doesn’t need a mortgage to buy properties?
The majority of people who buy properties for cash are buying to live in themselves, which has seen a 7% increase since 2009. However the percentage of buy-to-let investors buying with cash has decreased compared to previous years. In the first 6 months of 2019, 24% of cash buyers bought the property to rent, however in 2009 it was higher at 32%.
Cash buyers are also purchasing different types of property to before; the preference appears to be smaller homes. We’ve seen an increase of 2% of 2 bed homes purchased with cash between 2017 and 2019. Larger homes are being purchased less often with cash than before; in 2017 18% were bought with cash, which has fallen to 16% in 2019.
Which areas see the most homes purchased with cash?
In the first half of 2019, 34% of homes sold were purchased with cash in the South West, making this the region with the highest proportion of cash buyers.
Over half of homes bought in West Somerset were purchased with cash, at 58%. Though high, this is lower than in 2017 where it sat at 65%. The percentages are likely to be highest in West Somerset as it’s a popular area for people to move to once retired. Retired people generally have more equity and may be looking to downsize, the powerful combination for purchasing a home with cash.
Are you thinking of downsizing but not sure if now is the time? Let us know what’s stopping you in the comments below.
I began writing for Property Press Online in October 2019. Particular areas of interest are housing market news and new developments in the market.