Record level of homes being sold for cash

The proportion of properties that are sold to people who do not need a mortgage has more than doubled during the past five years, according to mortgage industry body the Council of Mortgage Lenders.

Just 18.7 per cent of sales were made to people who did not need to borrow money to fund their purchase in June 2005, the first month for which figures are available.

However, by January this year the level had more than doubled to 40 per cent.

The CML attributed the increase in the proportion of cash buyers to the current problems in the mortgage market.

Many homebuyers are finding it difficult to persuade banks and building societies to lend them funds at a time when lenders are increasingly averse to credit risk following the financial crisis.

The problems in the mortgage market have led to a steep fall in net lending from £108bn in 2007, before the credit crunch struck, to just £8.4bn last year, as the market troughed.

The CML said that as the number of people buying a property with a mortgage declined due to the lower lending levels, the proportion of sales that went to cash buyers had increased.

It added that the number of cash buyers had remained broadly unchanged, at 22,267 in April 2005 and 21,825 in January this year, although there are considerable monthly fluctuations.

A spokeswoman for the CML said: “The number of cash purchases has not changed very much.

“Property transactions are lower than a few years ago, so cash purchases account for a higher proportion of sales than previously.”

The group does not hold data on who these cash buyers are, but it said the majority were likely to be older people who had paid off their mortgage and had now decided to trade down to a smaller home. This could be to release equity or to live in a property of a more manageable size.

The CML said others were likely to be wealthy people, such as entrepreneurs, who had been successful enough to accumulate sufficient cash to trade up the property ladder without the need for a mortgage.

Overseas buyers are also thought to account for some of the cash purchasers.

In particular areas of the country, such as London, foreign buyers who live abroad are looking to take advantage of the weakness of sterling by snapping up properties.

The current North/South divide in the property market has been attributed in part to the fact that cash buyers tend to be concentrated in more affluent southern regions.

This has resulted in demand in these areas remaining stronger than it has in northern regions, despite the fact that many people face problems in getting a mortgage.

The figures come as the British Bankers’ Association said the number of mortgages approved for house purchase rose to an eight-month high of 31,660 in March.

But despite the improvement, the number is still down on the 35,124 mortgages for house purchase that were in the pipeline in March last year.

It is also significantly below the 70,000 to 80,000 approvals a month that are considered to be consistent with a stable housing market.

The CML based the figures on the difference between the number of property transactions recorded by Her Majesty’s Revenue & Customs each month and the number of mortgages advanced by its members, which include banks and building societies.

The proportion of cash buyers is based on a rolling three-month average.