The mortgage market is constantly cited as a key indicator of economic health and having a mortgage is merely just a fact of life but it seems as though, according to recent figures, a phenomenal amount of UK landlords are buying property outright with cash as opposed to getting a mortgage. Whilst cash purchases are on the increase, there has been a correspondingly sharp fall in the number of landlords not using a mortgage but this does not necessarily mean an increase of wealth but more a decline in mortgage lending and the liability that coincides with a mortgage rather than it being seen as an asset.
Within the last decade, the ratio of landlords acquiring property with cash has increased steadily. In 2007, only 41% of landlords purchased a home mortgage free and 10 years later we see another increase; just last month, 61% of Britain’s buy-to-let purchases were made absolutely mortgage free. Landlords in the North of England were most likely to use cash in order to fund their purchases. 70% of those investors in the North West cash bought- the greatest proportion throughout Britain. Albeit, London landlords are more likely to use mortgage finance. With property prices in the capital rising, there has been a considerable fall in the number of landlords not using a mortgage. In the South-East of London, landlords rely heavily on mortgages to fund their investments with a figure of only 42% of sales being independently financed.
Johnny Morris, Research Director at Countrywide, said: “On average landlords sell a home once every 17 years meaning as prices have increased, a significant amount of wealth has built up in the sector. This is now fueling cash purchases. With the forthcoming tapering of tax relief on mortgage interest payment, landlords have less of an incentive to borrow, suggesting more cash activity in 2017.
Rents are rising at twice the pace of last January and there are signs that rental growth is starting to pick up in much of the country. Ten months after the introduction of the stamp duty surcharge the number of homes on the rental market is showing signs of coming down. If this fall continues over the next few months, it is likely to support rental price growth.”
Since the 3% stamp duty hike in April 2016, the demand for mortgages is running below the level seen in previous years and landlords have been depending more on cash to fund their purchases. The tax hike means that since April, buy-to-let investors must pay a 3% stamp duty surcharge and furthermore, from the new tax year, it will begin to impose a cap on the level of mortgage interest tax relief that can be claimed. Despite this, mortgage lenders are fighting back and persevering with new attractive offers and deals that look to the long-term. One of these offers being the new Barclays’ 10-year buy-to-let which offers fixed rates at 2.99% which director of Mortgage broker, Anderson Harris deemed “unheard of” due to the schemes long term horizon.
Interestingly, the trend to cash purchase is noticeably occurring on extreme ends of the spectrum; over the last year almost two thirds of homes costing less than £125,000 were paid for in cash, closely followed by 64% of landlords who paid in cash for properties totalling £1,000,000 or more. This shows that in fact, cash purchases are driving both the top and bottom end of the market with the most and least expensive properties more likely to be purchased with cash.