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New research from Intermediary Mortgage Lenders Association (IMLA) reveals that a record amount of cash was injected into residential property purchases in 2016. This is echoed by James Baker, Associate Partner at Stags and manager of the Totnes branch, who adds “We have seen a real upturn in the number of unrelated chain sales last year, which continues into 2017, with at least one in five sales being agreed to cash purchasers.
According to IMLA, the total value of residential house purchases in the UK reached £261billion in 2016, with £152 billion provided by mortgage finance and £109 billion made up of cash funds including the proceeds of existing property sales. James continues, “This certainly helps speed up the sales process, with many of our clients then being able to negotiate a quick ongoing purchase.”
The IMLA found that cash funds have risen by 12% from 2015 and 57% since 2013, far outpacing the growth of mortgage lending over the same periods. Growth of £6.8 billion in house purchase mortgage lending from 2015 to 2016 was overshadowed by the extra £11.8 billion in cash contributions. As a result, cash provided 41.8% of funds for residential house purchases.
Three-quarters of the annual growth in house purchase lending came from first-time buyers in 2016. However, the growing influence of cash in the house purchase market has potentially negative implications for aspiring homeowners and home-movers.
Analysis from the Council of Mortgage Lenders (CML) suggests that outright cash transactions – those with no mortgage finance involved – continue to make up just over a third of all transactions.
Peter Williams, Executive Director of IMLA, commented: “The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee actions in 2014 quickly layered on top of the Mortgage Market Review affordability rules. With the market having cooled and interest rate expectations shifted since then, there is a legitimate case for asking whether current restrictions on lending are still appropriate or have become over-zealous.
In the meantime, rising house prices and stagnant incomes mean that access to wealth as well as mortgage finance will increasingly separate the ‘haves’ from the ‘have nots’ in the property market if the importance of cash continues to grow. The recent Housing White Paper was a missed opportunity to take strong action on housing supply, and we must hope that the upcoming election manifestos will be used as an opportunity to put that right.”