Cash buyers abound in a weak market

Around 27,000 homes are sold each month to buyers who don’t need a mortgage to complete the deal.

Leading housing market commentator Henry Pryor says that cash buyers are typically older people trading down, people buying with the proceeds of a divorce settlement or even National Lottery winners.

Some are almost certainly auction room bidders nervous about the strength of high street banks.

Pryor says: “The monthly total of cash buyers has remained pretty constant over the past six years, with a modest spread peaking in December 2006 at 39,780 and falling to just 18,000 in January 2009.

“While the number of cash buyers has remained pretty constant each month, the proportion of the total number of sales that they represent has not. Over the past six years roughly 28 per cent of all sales each month went to cash buyers, rising dramatically to peak in January 2011 at a whopping 40 per cent.”

He added: “While a mortgage valuation is done for the benefit of the lender, a borrower can be sure that their negotiating skills are getting checked to ensure that the loan-to-value (LTV) limit is based on a realistic value.

“Cash buyers are now propping up house prices as buyers who need mortgages find it harder and harder to participate. We are unlikely to see a material change to this until either lenders become more generous on terms, raise LTV rations or the multiple of income they will advance, or unless house prices fall.”

If banks refuse to ease their lending criteria, prices might have to go lower, which could be why Halifax in February predicted modest falls by the end of the year.