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Rise in cash buyers due to ‘over-zealous’ lending rules

There was a sharp rise in the number of home buyers using cash to buy property last year, with mortgage lending making its smallest contribution to the financing of property acquisitions since before the recession, according to the Intermediary Mortgage Lenders Association (IMLA).

The percentage of mortgage funds used by buyers dropped to 58.2% last year, which is significantly lower than the 76% recorded in 2006 or the 65% witnessed at the onset of the recession in 2008.

This means that the percentage of cash spent on residential property in 2016 reached a post-recession high of 41.8%, up from 40.1% 12 months earlier.

Overall, £109bn of cash was injected into residential property purchases last year, up 12% compared with 2015 and 57% higher than in 2013 – far outpacing the growth of mortgage lending over the corresponding periods.

IMLA’s figures show the total value of residential house purchases in the UK reached £261bn in 2016, with £152bn provided by mortgage finance.

“The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee (FPC) actions in 2014 quickly layered on top of the Mortgage Market Review (MMR) affordability rules,” said Peter Williams, executive director of IMLA.

Given the recent slowdown in the UK housing market, Williams believes that the existing restrictions on mortgage lending may have become “over-zealous”.

He also fears that rising house prices and stagnant incomes could 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”.

He continued: “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.

“For all the focus on the UK’s international standing, Brexit mustn’t blind the next government from problems brewing on its own doorstep which will drive an increasingly bigger wedge between different elements of society and block those without family financiers from having access to home ownership.” 

Contributions of mortgage lending and cash/equity to residential house purchases: 

 

Total value of house purchases

Total value of house purchase mortgage lending

Total value of cash contributions to house purchases

% of funds from mortgage finance

% of funds from cash

2013

£184.7bn

£115.0bn

£69.7bn

62.3%

37.7%

2014

£228.3bn

£136.6bn

£91.7bn

59.8%

40.2%

2015

£242.8bn

£145.4bn

£97.4bn

59.9%

40.1%

2016

£261.4bn

£152.2bn

£109.2bn

58.2%

41.8%

Annual change (%)

8%

5%

12%

   

Annual change (£)

+£18.5bn

+£6.8bn

+£11.8bn

   

Three year change (£)

£76.7bn

+£37.2bn

+£39.5bn

   

Three year change (%)

42%

32%

57%

   

Source: CML/Land Registry/IMLA

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