First-time buyers purchasing properties without the need for a mortgage now make up a record share of purchases by new buyers. Traditionally, cash purchases have been the domain of investors and older downsizers, but a growing number of first-time buyers are now joining this exclusive club.
Our analysis suggests that 9.5% of first-time buyers bought their home without a mortgage this year, up from 5.1% last year and 3.8% a decade ago.
The proportion of first-time buyers paying cash for a home is running at 60-70% above long-term pre-Covid levels, meaning they accounted for over a quarter of all cash purchases last year. This trend reflects how higher rates have frozen some mortgage buyers out and means that those people who previously used a mortgage out of choice are now turning to cash.
Prime markets tend to be the national habitat of the cash first-time buyer. Around 30% of people buying their first home in central London don't rely on a mortgage, a figure which falls closer to 20% in prime markets outside the capital. This means the average new buyer purchasing a home outright in Prime London is handing over £1.1m, a figure which reflects their deep pockets.
Knightsbridge has the highest share of cash first-time buyers in the country. Just under half (45%) of all first home purchases this year were mortgage-free, at an average cost of £1.55m. Meanwhile, outside the capital, cash plays a smaller role - partly because higher mortgage rates have pushed more first-time buyers out of the capital to be able to get their foot onto the ladder. Liphook tops the country list where 17% of first-time buyers were mortgage-free.
Most mortgage-free first-time buyers tend to be backed, at least in part, by the proceeds of family wealth. While inheritance plays a role, generally cash is handed over well before this point. Until the last couple of years, a large chunk of this money would have been invested elsewhere. However, higher interest rates have pushed more parental wealth into the housing market, subsidising Millennial exposure to higher mortgage rates and enabling them to escape the heat of the rental market.
The data also reveals the preferences of cash and mortgaged first-time buyers. Cash first-time buyers are purchasing bigger homes than their mortgaged counterparts, with 27% buying a property with three or more bedrooms compared to just 16% of mortgaged first-time buyers. This is predominantly because high mortgage rates have limited first-time buyers' ability to borrow, boosting demand for smaller homes. Meanwhile, cash buyers haven’t experienced the same restraints.
Cash first-time buyers are also more open to taking on a 'project' property, with 23.5% willing to do so, compared to just 16.2% of mortgaged first-time buyers. This likely reflects the fact that cash buyers have more flexibility and are less constrained by lender requirements for the property to be in a habitable condition from day one.
On the other hand, mortgaged first-time buyers are more willing or have had to compromise on location in order to get on the housing ladder. Over a third (36.8%) are willing to move more than a mile from their desired location, compared to just 21.2% of cash first-time buyers. High house prices, especially in London and the South East, mean mortgaged buyers often have to look further afield to find an affordable property.
However, falling mortgage rates over the next year or so should reduce first-time buyers’ dependence on cash and unlock more marginal moves from those most heavily reliant on finance. But the reality is, high house prices will mean the need for the Bank of Mum and Dad is unlikely to dissipate entirely anytime soon.
