Cash buyers exit the property market as uncertainty causes concern

Cash buyers are exiting the UK property market in enormous numbers as continuing economic uncertainty causes concerns according to a study by a leading property management firm.

DJ Alexander, one of the UK’s largest family run property management companies, has found that the volume of cash purchases has more than halved (54.6 per cent) in London over the last year and that in May 2018 (the latest month for which there are figures) the capital accounts for the second lowest volume of cash purchases in the UK after the North East of England.

The volume of cash purchases of property has fallen by 38.9 per cent year-on-year across England, comparing May 2017 to May 2018. In Wales this figure was down by 37.3 per cent and by 7.9 per cent in Scotland.

After London the next biggest drop in cash property purchases was in the South East which experienced a 41.3 per cent year-on-year drop; with the West Midlands next at 40.7 per cent; the East Midlands down 38.5 per cent; the North West down by 37.1 per cent; the South West down 34.9 per cent; Yorkshire by 34.0 per cent; the East of England by 31.8 per cent; and the North East by 26.9 per cent.

David Alexander, managing director of DJ Alexander Ltd, said: “These figures highlight a flight from risk by many individuals and property investors as uncertainty over Brexit, the wider economy, and more stringent taxation and regulation on property investment take their toll. It is clear that many cash investors were putting money into property in recent years but that the appeal has waned due to a slowing in the marketplace; reduced profitability from tax changes; and concerns about where the economy and the property market are going.”

“The appeal of the property markets in London and the South East has diminished somewhat following enormous gains in these areas in recent years. However, there are clear signs that this growth has now calmed and that investors are seeking better returns elsewhere. The average cash price paid by those in London has only increased by 0.8% year on year which indicates that the market has slowed considerably and may not now be regarded as a strong investment. The average London house price has only risen by 0.05% year on year between May 2017 and May 2018.”

David Alexander continued: “When an asset, like property, experiences this kind of slowdown the exodus of cash investors is inevitable but is unlikely to be permanent. Property, like other asset classes, has its ups and downs and uncertainty is part of the marketplace.”

“Indeed, there is an argument for simply shifting location in property investment from one part of the country to another. Cash buyers leaving London and the South East will be able to buy a lot more for their money in many other parts of the country, so we may see some of that in the months and years to come.”

Mr Alexander added: “With so much economic uncertainty it is inevitable that there will be a jitteriness in all markets including property. The volatility of the pound, the fluctuations of the FTSE, and the political uncertainty make many individuals and investors hold off until a calmer period emerges. Of course, for the more entrepreneurial this could be the perfect time to invest when others are holding back. The difficulty is in identifying the right market and the right price to dip your toe in. Over the long-term property remains the mainstay of most investment portfolios and will remain so. It is just that, at the moment, there are so many variables and few constants to contend with producing insecurity and uncertainty.”