Cash buyers soar but keep prices down

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With homes reportedly changing hands in parts of north-west England for as little as £10,000, the numbers of buyers purchasing homes for cash may have soared to nearly 40 per cent of total transactions, according to new reports.

The latest June figures from the Land Registry show the number of homes going on the market each day – 5,115 – is not far behind the long-term average (5,244).

The problem is that a much smaller percentage than usual are finding buyers: only 2,200 vendors sold each day in May against the long-term average of nearly 3,500. In February 2007, as the last boom neared its peak, some 5,333 homes were selling each day.

And in this very small number of sales, the cash buyers, it seems, are all-important – presumably buying in many cases for considerably less than the asking price as sellers begin to despair.

Henry Pryor, a property market commentator at HousingExpert.net, said: “Cash buyers (those not dependent upon mortgage finance) still remain a hugely significant proportion of the market with around 40 per cent of the relatively few transactions taking place without the need of a loan.”

Pryor thinks cash buyers are emerging from all generations and various social groups.

“Some belong to the Saga Generation,” he says, “and they are moving downmarket to a small home. Others are spending inherited money, and some may be recent arrivals in this country who have brought sizeable sums with them from another country.

“Plenty are those for whom the recession so far has not been a terrible setback – particularly the bankers.

“Over the long term, cash deals typically represent around 28 per cent of transactions. The market remains extremely sensitive: supply is arguably too good while demand from those who can actually transact remains very weak.

“Sellers haven’t got the message with asking prices getting too far ahead of sale prices or values.

“Those few who are actually selling are often taking far less than they were asking.

“Cash buyers account for around twice the number of sales that we would normally expect which has an impact on the monthly surveys from lenders like Halifax and Nationwide, whose numbers don’t count the 40 per cent of buyers who didn’t need a mortgage.”

At the consultancy Capital Economics, property economist Paul Diggle says: “Arguably, at the current time, we might expect that cash transactions would actually be higher than usual.

“Investors should surely be attracted by the fact that house prices are ten per cent or 20 per cent below their peak, while returns on cash are typically negative in real terms.

“And downsizers who expect further house price falls have an incentive to act sooner rather than later.

“While it is impossible to be sure, one interpretation of the data might be that investment demand is rather more muted than it is often portrayed to be, and that downsizers remain the primary driver of cash buying activity.

“But if that is right, at least it should allay fears that activity will falter as a finite pool of potential cash buyers is exhausted.”

Pryor believes the gap between the average asking price and selling price is more than £78,000 – suggesting that many who sell eventually take a much lower figure than they asked. The long-term average for this gap is around £52,000.

Pryor says: “While those at the top of the ladder escape the worst in a difficult market, not everyone is immune.

“Put your house up for sale today, and you have a six per cent chance of selling in the first month and less than 30 per cent chance over a year.

“Over-paying is very easy, as asking prices offer little guide to value and buyers needing finance may struggle to get acceptable terms.”