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£109bn injected into the residential property market


Cash

The use of cash in property purchases is threatening to exacerbate housing inequality in the UK, according to analysis by the Intermediary Mortgage Lenders Association (IMLA).

In 2016, £109bn of cash (including the proceeds of existing property sales) was used for residential house purchases, up 12% from 2015 and 57% since 2013.

The total value of residential house purchases in the UK reached £261bn in 2016, with £152bn provided by mortgage finance.

Peter Williams, executive director of IMLA, said: “The backdrop of a ‘broken’ housing market is putting growing pressure on lenders to innovate in terms of product design at a time when they have been operating within increasingly tightening regulatory boundaries.”

Research showed that although house purchase lending was up 5% from 2015 in 2016, cash injected into residential property rose significantly faster at 12%.

This represented a £6.8bn growth in house purchase mortgage lending, but an £11.8bn increase in cash contributions.

“The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee actions in 2014 quickly layered on top of the Mortgage Market Review affordability rules,” Peter added.

“With the market having cooled and interest rate expectations shifted since then, there is a legitimate case for asking whether current restrictions on lending are still appropriate or have become over-zealous.

“In the meantime, rising house prices and stagnant incomes mean that access to wealth as well as mortgage finance will increasingly separate the ‘haves’ from the ‘have nots’ in the property market if the importance of cash continues to grow.

“The recent housing white paper was a missed opportunity to take strong action on housing supply, and we must hope that the upcoming [general] election manifestos will be used as an opportunity to put that right.”





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