Why cash property buyers are holding on to their money

Cash buyers are spending less on property, new data shows, as experts warn of concern over “the threat of future tax changes.” Those looking to pay for their home with cash are also being deterred by the current “sentiment” of the housing market, which is contracting. In the last year to June, total spending on home purchases was £416bn – a £7.5bn fall on the year prior. Conventional wisdom might suggest that this was down to buyers being unwilling to spend large amounts of money on mortgages, given rates have been relatively high, but the data shows the opposite. Shorts Analysis by estate agency Savills shows that in the past year, the amount of mortgage debt being taken on is up £11.2bn, which is around 6.2 per cent. Meanwhile, the amount being spent by cash buyers is actually down £16.4bn or 10.1 per cent. So why are they more hesitant to part with their cash to buy bricks and mortar? We spoke to experts to find out. The data shows a “weak” housing market Of all home purchases, 35 per cent are made by cash buyers – those who don’t need a mortgage or loan – in the UK. But the amount being spent by cash buyers on property is the lowest it has been since the Covid pandemic. Meanwhile, the amount being spent funded by mortgages is back to levels last seen before rates started to climb dramatically, towards the end of 2022. The overall data shows a “weak housing market” according to Lucian Cook, head of residential research at Savills estate agency. The majority of the market is being funded by cash and purchases from equity – a stake someone has in a home they already own – but mortgage debt is now a growing part. Why are cash buyers spending less on property and mortgage buyers more? Experts say there are multiple reasons behind the dip in the amounts cash buyers are spending. Cook says the first of these is “sentiment”, which “more discretionary cash buyers have been more exposed to”. Sentiment in the housing market refers to the overall attitude, confidence, or feeling of buyers and investors. Generally, experts say this is low at the moment, which Cook says at the top end of the market is partly down to “the threat of future tax changes”. The government already has plans to charge owners of properties worth more than £2m a ‘mansion tax’, and the threshold for this could drop to £1.5m at this Budget, according to reports. “Often, cash buyers are more able to put off a move until they feel market conditions are more in their favour, something which potential downsizers are particularly inclined to do,” Cook adds. Alex Goldstein, a property buying agent, says uncertainty over the future price growth is causing would-be investors to spread their money across various sources beyond bricks and mortar. As a result, some are opting to buy with mortgages, in order to free up cash they have for investing elsewhere. “I see this about buyer’s de-risking. Why put all your cash into property which is a relatively illiquid asset currently, when you don’t have to?” he asks. “If you can take your remaining cash and then invest it wisely into a more liquid asset class, you should be getting say circa 10 per cent per annum [any stock market trackers have beaten this return in the past year] and the flexibility if you needed the funds – the equation then starts to balance. “In a tough climate, cash always remains king whether in property or any other sectors. People are de-risking and being more on an action footing.” For example, returns on the US stock market have grown dramatically over the last couple of years. Why are people spending more on mortgages? Experts said there were various reasons why people may be taking on larger amounts of mortgage debt, despite relatively high rates. David Hollingworth, associate director at L&C Mortgages, said part of the cause could be that lenders had been relaxing their criteria, to allow more borrowers to take out mortgages. Several banks are now allowing borrowers to take out more than six times their income. “The improving criteria and product choices are likely to have played a part especially for first-time buyers,” he said. “With more lenders offering higher income multiples and more products also designed to address the challenges of saving for a big deposit, first time buyers may now find that there’s more solutions on offer than there has been in the last couple of years,” he added. Cook also argued that the prospect of higher rates in the future could be pushing buyers to lock in rates. Last year in particular, rates were far better than equivalents in 2023 and 2024, and some buyers may have decided they were the best they were likely to get for some time. “The prospect of further rate hikes has given needs-based movers an incentive to lock into a mortgage offer once they receive it,” he said.