2016 saw the role of cash in funding house purchases reach a post-recession high, according to new analysis by theIntermediary Mortgage Lenders Association (IMLA).
The trade body’s analysis shows that cash is increasingly oiling the wheels of the residential property market, with potentially far-reaching implications for access to homeownership and wealth distribution.
IMLA’s figures show the total value of residential house purchases in the UK reached £261bn in 2016, with £152bn provided by mortgage finance and £109bn made up of cash funds including the proceeds of existing property sales.
It means that while 2016 house purchase lending was up 5% from 2015 and 32% since 2013, the total sum of cash injected into residential property rose significantly faster: 12% year-on-year and 57% over three years. Growth of £6.8bn in house purchase mortgage lending from 2015 to 2016 was overshadowed by the extra £11.8bn in cash contributions.
As a result, cash provided 41.8% of funds for residential house purchases, or £418 in every £1,000. This was up from 37.7% or £377 in 2013: the highest contribution of the post-credit crunch years, reducing the role of mortgages in funding house purchases even though total lending grew each year from 2013 to 2016
Table: 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
The trend comes despite significant government first-time buyer initiatives during the period 2013-2016, such as the Help to Buy schemes, which have helped thousands of borrowers with deposits as small as 5% to buy their own homes.
IMLA’s fourth annual ‘New Normal’ report points out that three-quarters of the annual growth in house purchase lending came from first-time buyers in 2016, as the number of home-movers fell back. At the same time, buyer affordability – measured by the proportion of income that the typical home buyer spends on mortgage interest – improved to record levels for those who were able to secure a mortgage thanks to unprecedented low rates.
However, the growing influence of cash in the house purchase market has potentially negative implications for aspiring homeowners and home-movers who cannot stump up enough funds to add to a mortgage which their salary can support in order to afford a property purchase. Analysis from the Council of Mortgage Lenders suggests that outright cash transactions (with no mortgage finance involved) continue to make up just over a third of all transactions.
Separately, Legal & General has forecast that the ‘Bank of Mum and Dad’ will lend £6.5 billion to help family members get on the property ladder in 2017, putting them on a par with the ninth largest UK mortgage lender.
Peter Williams, executive director of IMLA, said: “The backdrop of a ‘broken’ housing market is putting growing pressure on lenders to innovate in terms of product design at a time when they have been operating within increasingly tightening regulatory boundaries. We are seeing a number of flexible products come to market to help make home-buying more accessible, for example using family guarantors, but there are limits to which flexible lending solutions can compensate for continuing structural flaws in the housing market with all the social implications that entails.
“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. 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.
“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.”