Cash Purchases Increasing

The number of home owners purchasing their properties with cash rose last year. The figures show that any efforts by the Bank of England to stifle price rises could be halted.

The figures from the Intermediary Mortgage Lenders Association (IMLA) highlight that last year 40% of purchases were carried out with cash. For every ?1,000 spent on property, only ?398 comes from a mortgage provider. The number of properties bought with the aid of a mortgage fell to 62%, which is the lowest number since 2005. As prices have gone up, home owners have been able to use the equity in their property to buy their next home outright.

This high number of cash sales could prevent any measures by the Bank of England to reduce the speed of property price rises from being successful. There is only so much that rising interest rates or restricting the availability of mortgages can do if more and more buyers are using cash.

There is the risk that this number of cash buyers could result in house prices rising significantly. This would impact more on first-time buyers, who cannot benefit from the effect of equity in their current property. Property price rises will become even more of an issue if supply fails to meet demand. Currently, the number of houses that are being completed is less than 50% of the number required to meet demand. Last year the number fell by 5%, with a total of 109,370 houses finished.

Benefits of a Cash Sale

If you are lucky enough to be able to buy your new home with cash, then there are a number of benefits of doing so.

You might be able to negotiate a discount on the asking price, due to the potential speed of the transaction. Rather than having to wait for mortgage approvals and other delays with the banks, a cash buyer can proceed far quicker.

When you?re paying in cash, you reduce the uncertainty of the sale not going through. Today, even if you have some form of mortgage guarantee, the money isn?t confirmed until you go through the final approval process. This means you could miss out on that dream property with an iron balcony railing simply because of problems with the mortgage.

Instead of being a small minority of transactions, cash purchases are becoming more popular and having a growing impact on the market.