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Cash transactions: the myths and the reality


Published: 5 November 2015 | Author: Mohammad Jamei

  • Cash purchases account for roughly one-third all transactions, while the rest are funded by mortgages.
  • As a region, London has the lowest proportion of cash transactions in England and Wales.
  • Survey data shows the majority of cash buyers are at, or close to, retirement and are downsizing or buying a property of about the same value.

Cash transactions have always played an important part in the housing market. In the years before the financial crisis, up to a quarter of transactions were financed by cash.

Immediately after the financial crisis, the proportion of cash transactions grew but not because the total number of cash transactions increased. It was because the total number of mortgaged transactions fell away sharply.

More recently, both the number and proportion of cash transactions has grown. In 2014, the number of transactions surpassed pre-crash levels. And by that stage, the proportion of cash purchases was likely to have been at its highest level post-war. 

By contrast, the number of purchases in the regulated mortgage market remains significantly lower than in 2007.

Chart 1: Cash and mortgage transactions levels, UK

chart showing number of mortgage and cash transactions, UK

Download the data

Source: CML Regulated Mortgage Survey, HMRC, CML calculations

It is likely that the pick-up in cash transactions recently is being supported by changes in demographics. As we will see later on, an ageing population tends to produce more cash transactions.

On the whole, less is known about cash purchases than mortgaged transactions. Using survey data from YouGov and cash transactions data from the Land Registry for England and Wales for the second quarter of 2014, we take a closer at this section of the market.

Regional differences in cash purchases

We begin by looking at the proportion of transactions financed by cash in each region, compared to the proportion financed by a mortgage.

Table 1: Split of transactions by type of finance

Regions Cash Mortgage
East Midlands 34% 66%
East of England 33% 67%
London 27% 73%
North East 34% 66%
North West 34% 66%
South East 33% 67%
South West 40% 60%
Wales 36% 64%
West Midlands 32% 68%
Yorkshire and The Humber 33% 67%
England and Wales 33% 67%

Source: Land Registry, CML calculations

The south west has the highest proportion of cash buyers in any region of England and Wales. On the flipside, London has the lowest proportion of cash transactions. Apart from those two regions, there is a fairly similar split between how a transaction is financed across other regions.

The average price of a transaction in the second quarter of 2014 stood at roughly £258,000 for England and Wales. Transactions financed by cash were on average £255,000 while transactions funded by a mortgage were just under £260,000. The small difference between the two is down to the mix of properties, as cash buyers are more like to purchase flats, while buyers with a mortgage favour semi-detached properties.

There were some variations between different regions that were masked by the national averages for the price of a transaction. There were only two regions in which cash transactions were for higher priced properties than those funded with a mortgage: London and the south west. Generally, the difference between the price of cash and mortgage-funded transaction was small, except in London.

Chart 2: Average price of a cash transaction as a proportion of mortgage transactions, by region

chart showing cash transactions a proportion of mortgage transactions, by region

Download the data

Source: Land Registry, CML calculations

The London market

The dynamics of the London market are unique compared to the rest of the country. An average transaction in the capital is nearly double the national average.

One reason the average cash transaction is higher in London compared to a mortgaged transaction is because of the very high value of cash transactions in central London. While few in number, they are large in value terms. As an example, the average price of a cash transaction in the three most expensive boroughs in London, which also happen to be the three most central, stood at just over £1,600,000.

Chart 3: Proportion of transactions financed with cash, by London boroughs

chart showing london borough map

Source: Land Registry, CML calculations

The same boroughs also have the highest proportion of cash transactions. They are Chelsea and Kensington, Westminster and the City of London. Since the number of transactions in these boroughs is very low, the average proportion of cash transactions for London as a whole remains largely unaffected.

The proportion of cash transactions falls away rapidly as we move further out from central London, and the majority of boroughs in London have relatively fewer transactions financed by cash than the UK average. This shows the limited role cash plays in all but the most central London boroughs.

Who’s buying with cash?

Overlaying this analysis with findings from the YouGov Conveyancing 2015 survey allows a better understanding of transactions in general and provides some insight into the two types of transactions. The survey asked a representative sample of people in the UK who had just bought or sold a property.

The survey data broadly matches the results from the Land Registry on the split of cash and mortgaged transactions by region.  It also shows that nearly three out of four respondents said the cash they used to buy a property came from the sale of another residential property.

Other cash buyers cited savings and inheritance as the other two most common ways of financing their transaction.

The vast majority of cash buyers were aged 55 and over, and were downsizing or moving to a property of about the same value.

This behaviour is typical of people at or close to retirement, who are moving to more suitable accommodation. Activity in this age group is likely to continue to grow, as the Office for National Statistics population projections forecast an increase of one million more people aged between 55 and 64 over the next five years. This is likely to lead to more cash transactions, as most of these people own their homes outright, according to the English Housing Survey.

This is not to say that those near retirement are driving transactions in central London. But it does show that cash transactions across most of the country have similar characteristics to their mortgaged counterparts, except they are financed by selling a former property or through savings and inheritance.