Reuters
Members of the In and Out club, one of London's oldest private members clubs, share a joke as they prepare to march around St James's Square to celebrate the 150th anniversary of the club, in London.
Soaring London property prices aren't because of the super-wealthy snapping up stock — it's your grandparents' fault.
The number of people paying in cash for properties in London rocketed to a record high, according to research from estate agents Hamptons International this week.
The total number of cash buyers rose to 38% in the first three months of the year while the value of sales jumped up by one-third.
Combine this with the fact that Britain's capital has a huge shortage of homes and with the regulator's crackdown on mortgage lending, and it's natural to assume that wealthy investors are snapping up properties to rent out as ordinary people struggle to get on the ladder.
However, if you look more closely at the data, it's actually pensioners, or as Britain's regulator calls them "last-time buyers," who are cashing in on record low interest rates and selling off their large homes for a lot more money than they paid for them. In turn, they are buying up a lot of the smaller properties with cash, leaving them mortgage-free.
Of course, this puts pressure on first-time buyers looking to buy a one-bedroom flat in London, because the small residential properties available are going to people who can snap them up quickly without worrying about securing a mortgage.
Hamptons International
“Tighter credit criteria have undoubtedly affected the proportion of cash sales over time. So too have rising house prices by allowing people to downsize or move to a cheaper area without a mortgage more easily," said said Fionnuala Earley, Hamptons director of residential research.
"Higher prices may also have allowed some increase in cash buying as mortgage holders raise finance on an existing property to purchase property for family or as investments.
“Cash buying increased in all parts of the country, but particularly strongly in London where higher prices have typically borne down on the numbers and proportion of cash buyers in the past. However the South West continues to top the cash buying table, driven by downsizing retirees and holiday home buying.”
Pensioners pushing up prices
Hamptons International's research showed that nearly two-thirds of one-bedroom homes in London were bought with cash. In tandem, housing transactions have sunk by a third since before the credit crisis.
Meanwhile, the price of the average London home is now around £525,000 ($806,959), according to the Office for National Statistics. This is a 90% rise from a decade ago.
Hamptons suggested in its report that the cash buyer surge is down to older homeowners who heavily contributing to a rise in London home prices at one end of the market.
While many may assume that the super-rich are making it more difficult for ordinary Britons to get on the housing ladder, most are ploughing their cash into properties over £1 million. In June, Savills reported that 58% of London properties over this price threshold were bought with cash.
The super-rich aren't interested in buying a crappy one bedroom flat is Hackney, they're interested in buying flats like these.
For those who don't already own property, salaries aren't nearly fast enough to keep up with price rises. It's people who are cash rich and debt free due to them landing a windfall because of property inflation.
CML
Other economists say that old people who don't decide to sell up are then also contributing to the massive housing shortage in London.
In September Bob Pannell, an economist at the Council of Mortgage Lenders, wrote an article entitled "When building more homes isn't enough," and highlighted the issue with under-occupancy (emphasis ours):
Demographic changes are simultaneously boosting demand for housing and constricting its supply. It is clearly understood that net migration, increasing life expectancy and the growth in the number of single-person households are all boosting demand. But we also have an ageing population that holds a disproportionately large amount of national housing assets. Older people are more likely to under-occupy housing, and to be reluctant – or unable – to move to homes that might better suit their needs.
The issue with pensioners
Reuters
1% of those approaching retirement plan to snap up a second home to rent out
The Financial Conduct Authority actually came under fire recently for highlighting the issue over the "last-time buyer" and how this is making it more difficult for other people to get on the housing ladder.
“We've got a big supply issue in this country. There's lots of questions about whether it is right that the government should focus on the first-time buyer when we’ve got a real issue with the last-time buyer," said Lynda Blackwell, a mortgage sector manager for the FCA at an industry panel discussion which was documented by the Daily Mail.
“There’s older borrowers who basically pay off their mortgage and sit quite happily in a very big house.”
Saga, the lobby group for over-50s, hit back and said the comments were "unhelpful" and "insulting."
But as Pannell at the CML said, "home-ownership is becoming increasingly polarised – by such parameters as age and the tenure of parents. Is a healthy property market one that is increasingly driven by older property owners providing a key to a home for their children by tapping into their own housing equity?"
Christine Whitehead, professor of housing at the London School of Economics, even told a housing committee hearing in September that the older generation are making things harder for younger, ordinary Britons to get on the housing ladder.
“We are now housing four generations rather than three and we have not addressed that right across the board,” she said at the meeting. “The result is that those who have to get into the market are being excluded by people like me who live too long. That is important in this context because that means that the people who are coming in are going to — as they always have — have a much more difficult situation for a short period of time."
It a tough subject to broach but it seems Britons are misplacing their anger or frustration on wealthy investors pushing up prices and people out of properties.
It seems that if Britain wants really address the issues with soaring prices and a housing shortage, it's got to take a hard look at the older end of the market.