Cash buyers – where in the UK are they most promine…

The latest research from property consultancy Knight Frank has set out which areas of the UK have the largest proportion of cash buyers – and might therefore be more insulated from rising mortgage costs.

A combination of global and domestic factors and the market reaction to Kwasi Kwarteng’s ill-fated (not so) mini-Budget has seen mortgage rates soaring for many, while many whose fixed-rate deals come to an end shortly could see their monthly repayments rising by as much as £500 or £600, if not more.

In the same way the pound became a barometer for sentiment following the Brexit vote, the swap market is providing a verdict on the new government’s economic plan,” the agency said. “In simple terms, swap rates have risen because financial markets believe the Bank of England will have to raise rates more aggressively to contain inflation following the tax cuts announced in last month’s mini-Budget.”

Knight Frank says that matters to households because fixed-rate mortgages will also increase, with more than 95% of mortgage lending since 2019 done so on a fixed rate basis.

“And it matters to the government because if people are paying notably higher mortgage costs, this would overshadow its tax giveaways and hurt its chances at the next election,” Knight Frank adds.

It is a chain of logic that makes the current situation feel untenable, as we explored here. Recent jitters in the gilt market have piled further pressure on the government. The five-year swap rate was almost 5.5% last week, which compares to 3.9% in mid-September. As a result of this changing rate environment, we have revised down our forecast for the next two years.”

The firm argues that higher lending rates have so far led to mixed fortunes in the housing market, with anyone coming to the end of a fixed-rate term or buyers with a lapsing mortgage offer at the sharp end of what is happening.

“As more buyers come up against the reality of monthly mortgage bills rising by hundreds of pounds, the financial pain will spread through the housing market,” it adds.

Knight Frank believes that, against a backdrop of increasing borrowing costs, one key variable to consider is housing equity, with cash buyers and those using low levels of debt comparatively less exposed to the ‘vagaries of the mortgage market’.

An analysis of Land Registry data since 2011 reveals that buyers in outer London and parts of the South-East have typically relied most on mortgage debt in the UK, with cash buyers accounting for less than 20% of sales in areas including Barking and Dagenham, Slough, Thurrock, Dartford and Waltham Forest. Overall, the UK average was 31%.

By contrast, the list of areas where cash buyers are at their highest has a ‘distinctly second-home feel’, being topped by the coastal areas of North Norfolk (59%), East Lindsey (57%) and Rother (55%).

Leading the way for cash buyers in the capital over the last decade has been, unsurprisingly, the very affluent areas of Kensington & Chelsea (51%), the City of London (47%) and Westminster (46%).

Knight Frank says prime central London will be further boosted by returning international buyers and a weak pound, as the agency explored in this forecast here.

“The more equity that flows into and is already inside a particular housing market, the lower the level of financial distress,” Tom Bill, head of UK residential research at Knight Frank, commented.

“Downwards price pressure will be felt everywhere but some locations will be more insulated than others.”

Knight Frank concludes by saying that, more widely, record low UK unemployment and the fact lenders are well-capitalised and reportedly looking at forbearance options for borrowers will also help contain the type of forced selling and double-digit annual declines seen during the global financial crisis of 2007-9.

Source link

Sharing Is Caring:

Leave a Comment