Focus Cash Buyers. Hamptons International Research Autumn Beyond your expectations

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1 Focus Cash Buyers Hamptons International Research Beyond your expectations

2 Uptick in Property Sales Driven by Cash Buyers In the first half of 2013 more than a third of housing sales have been to cash buyers. Hamptons International s latest research estimates that between January and June 140,000 sales were made to cash buyers out of a total 400,000 transactions. Contrary to popular belief, much of the recovery in house sales in recent months has been driven by increased cash buyer activity rather than simply increases to mortgage lending. So far in 2013 both the proportion of cash buyers and the absolute number has increased. Contrary to popular belief, much of the recovery in house sales in recent months has been driven by higher cash buyer activity rather than simply increases to mortgage lending. The number of cash buyers has grown at a much faster rate than mortgage buyers in 2013 and is now at its highest total number since Throughout the recession and due to the collapse in mortgage availability, cash buyers have become a more important sector of the market. Some might ask what role cash buyers play in the market: The answer, in part at least, is that they can be as important as first- time buyers in adding liquidity to the market. Cash buyers often break chains at both the top or the bottom and allow several other, mortgaged, transactions to take place. But unlike first-time buyers they are not necessarily constrained by mortgage finance. Increased mortgage activity does facilitate cash buyers too though. New buyers coming to the market and second steppers moving up ultimately enable those at the top of the market to release equity on sale to buy their next home with cash. In the first 6 months of 2013 Hamptons International Research estimates 35 per cent of all properties sold have been to cash buyers. This is an increase of 11 per cent from the same period in 2012, translating into 13,600 extra cash sales across England & Wales. By comparison the increase in the number of mortgages for house purchase is small, just 6,300 (3 per cent) over the same period. Hamptons International estimates up to 70 per cent of the 20,000 additional property sales recorded by HMRC in the first half of 2013 can be attributed to cash buyers. Change in Number of Cash Buyers Number of Sales 200, , ,000 50, First 6 months by Year Source: Hamptons International, HMRC, CML

3 How Cash Buyers are Spread Across England & Wales Hamptons International Research estimates that more than a third of sales in England and Wales over the last 12 months were cash sales but the proportion of cash buyers is not spread evenly across the country. The South West has the highest proportion of cash buyers. 39 per cent of purchases in the area over the last 12 months were cash sales, against an average across England and Wales of 33 per cent. The South West has both the highest rate of owner occupation in England and the highest proportion of older age groups in its population, so it shouldn t be a surprise that it has a larger proportion of outright owners and cash buyers than the English average too. The reason? The older age cohort is precisely the group of house buyers most likely to be downsizing and releasing enough cash to buy without a mortgage. The fact that more cash buyers in the region are buying one and two bedroom properties than anywhere else in England and Wales would seem to support this. East Anglia shares similar demographics to the South West which goes some way to explaining why it has the next largest proportion of cash buyers, at 36% of sales in the last 12 months. Region England & Wales 33% South West 39% East Anglia 36% Yorks & Humber 36% East Midlands 36% Noth East 35% Wales 35% South East 32% North West 31% West Midlands (region) 30% London 24% Proportions of Cash Sales (12 months) Source: Hamptons International, HMRC, CML The South West has both the highest rate of owner occupation in England and the highest proportion of older age groups in its population. Retired Other Outright ownership, % Owner occupation by region, % Other Retired S West S East East East Mid West Mid N West Y&H N East London England Source: ONS Source: ONS Not all of London s Housing Market is Defined by International Wealth At the other end of the spectrum, and perhaps contrary to some overblown expectations of the wealth of Londoners, London has the smallest proportion of cash buyers, only 24%. That is simply a reflection of the high cost of housing in the capital. Clearly some cash sales do take place, but the proportion is and has consistently been much lower than elsewhere in England. Much attention is paid to London s Prime Central housing markets, giving the impression cash sales dominate across the capital. Often however the distinction between these markets and the wider London market is lost in the detail, as the size and impact of the premium markets are exaggerated. Less than 7% of London sales over the last 12 months happened in the Prime Central London areas. Whereas the Prime Central London market is very much driven by cash and international buyers (only 40 per cent of buyers this year have been from the UK and 60% of sales were cash) this is only a small segment of the wider London market. Much of the rest of London is fuelled by domestic demand, for example 74 per cent of buyers across the rest of Hamptons International s network in 2013 were from the UK. The smaller proportion of cash buyers in London is simply a reflection of the high cost of housing in the capital.

4 The Value of Cash Buyers Cash buyers account for a third of sales That s 280,000 homes purchased without a mortgage in the last 12 months. Since 2007 Cash Buyers have become an increasingly important part of the market... 40% Proportion of cash buyers 30% 20% 10% 280,000 0% But at Lower Actual Volumes 850,000 In the downturn the number of transactions collapsed, although the number of cash sales reduced it wasn t as much as mortgaged purchases. From 2007 to Last 12 Months All Sales = 1,442, ,000 = 589,000 less Morgaged = 1,055, ,000 = 485,000 less Cash = 388, ,000 = 104,000 less So even though cash buyers are more important now than ever, the actual total number of cash sales is lower than in And now cash buyers are leading the recovery in sales in 2013: Of which mortgaged - 6,3000 = +3% Of which cash - 13,600 = +11% Additional new sales in first half of ,000 That means 70% in 2013 of the uplift in sales can be attributed to cash buyers.

5 Cash Buyers Became More Prominent over the Down Turn The shift in the proportion of cash buyers in the housing market occurred over the downturn. Cash sales increased from around a quarter of the total market in 2007 to 35 per cent by mid But that doesn t mean that there were suddenly lots more people with the means to buy property with cash. Quite the opposite, the numbers of cash buyers also fell in the downturn, from a total of about 400,000 in 2007 to a low of 260,000 by 2010, but this decline was smaller than the rest of the market. While total transactions fell by 45 per cent between 2007 to 2010 cash sales only declined by 35 per cent. The big rise in the proportion of cash buyers in recent years is very much a symptom of the collapse in the number of mortgaged transactions. Paradoxically, because mortgaged transactions can free up equity at the top of housing market chains, there would be a larger actual number of cash buyers if the mortgage market was healthier too. Number of Cash Buyers Cash buyers Change over the Downturn 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Q205 Q405 Q206 Q207 Q407 Q208 Source: Hamptons International, HMRC, CML Q408 Q209 Q409 Number Q210 Q410 Q211 Proportion Q411 Q212 Q412 Q213 Q , ,000 80,000 60,000 40,000 20,000 The number of cash buyers actually fell over the downturn, but at a lesser rate than the rest of the market. The result? Cash buyers have become a more important part of the housing market. 0 Proportion of Cash Buyers Downsizers and Buy to Let Investors Our data show that the growth in cash buyer demand has been strongest in the sub 500,000 price bracket; with corresponding falls in higher price bands. Growth in this price band has also been fairly uniform across England & Wales. That indicates that the bulk of new cash buyers are likely to be investors and downsizers. That inference is reinforced by the fact that the cash buyer rate is higher among one and two bedroom properties than larger ones. Many cash buyers are downsizers planning to take advantage of the capital locked away in their properties. Improved sentiment towards the housing market and additional liquidity injected by an increase in mortgage lending could drive the downsizer market on further too. Our ageing demographic means that a whole generation is getting ready to downsize, planning to take advantage of the capital accrued over a lifetime but locked away in their properties. An increasing number of these have paid off their mortgages, the number of households owning their home outright increased by 830,000 between 2001 and 2011 according to the ONS (increasing in proportion of total households from 29 per cent to 31 per cent). In contrast, the lack of mortgage finance throughout the downturn is likely to have driven investors to buy with cash. The activity of investors has been no secret in recent years, with private individuals and small institutions stepping in to meet demand from a growing number of renters. According to figures from DCLG between 2007 and 2011 alone there were one million more properties added to the rental market, a 30 per cent increase. Generally rental investors prefer to borrow, to increase their buying power, ultimately maximising the return on the money they invest. But the availability of buy to let mortgages has been more constrained in recent years, with BTL mortgage advances running at half of their peak levels, more investors have been pushed into the cash buyer category.

6 Drawing on over 140 years of experience, Hamptons International is one of the premier international residential agents with a network of more than 85 offices in the UK and key overseas markets. We continue to expand to be one of the most valuable and innovative residential property groups in the world. Our name is synonymous with an unrivalled level of expertise and the finest properties. Our services include: Sales Lettings Residential Development Valuation Land & Professional Services Property Management Mortgage Finance Corporate & Relocation Services Interior Solutions /research Broadway Banbury Deddington Buckingham Cheltenham Bristol LONDON Bath Painswick Stroud Cirencester Marlborough Paddington Notting Hill Mayfair Ealing Ealing Kensington Knightsbridge Sloane Square Chiswick Pimlico Chelsea Battersea Barnes Fulham East Sheen Clapham Richmond Putney Teddington Wimbledon Balham Kingston upon Thames Muswell Hill Hampstead Islington St John s Wood City Dulwich Canary Wharf Tower Bridge Oxford Great Missenden Henley-on-Thames Newbury Winchester Marlow Maidenhead Sunningdale Fleet Farnham Alton Chichester Amersham Rickmansworth Beaconsfield Gerrards Cross Windsor Weybridge Guildford Liphook Godalming Haslemere Esher St Albans 29 London Offices Mayfair (Head Office) Epsom Dorking & Reigate Horsham Caterham Sevenoaks Tunbridge Wells Haywards Heath Brighton & Hove Open Data Hamptons International Research s cash buyer estimates are primarily based on property transaction data from HMRC. We compared HMRC transaction numbers with mortgage lending figures from the CML making adjustments for buy to let and some geographical quirks between the two data sets to provide a cash buyer estimate. We then supplemented and refined our cash buyer estimates with information on buyer types from property sales across the Countrywide Group and Land Registry Sales Data. GOLD LARGE ESTATE AGENCY Johnny Morris Head of Research morrisj@hamptons-int.com +44 (0) Fionnuala Earley Residential Research Director earleyf@hamptons-int.com +44 (0) Hamptons International This report was published for the purpose of general information and Hamptons International accepts no responsibility for any loss or damage that results from the use of content contained therein, including any errors or negligence from third party information providers. It is your sole responsibility to independently check and verify the facts contained within this report. All opinions and forecasts within this report do not in any way represent investment or other advice. Reproduction of this report in whole or in part is not allowed without the prior written consent of Hamptons International.