Proportion of cash buyers increasing

Really2

Cleaver wrote: »

No it isn't.

I didn't spot this comment before I recommended the book above, but there's a great explanation around the shipping industry in 17th Century Europe which explains really nicely why credit and borrowing (or debt, depending on how you want to look at it) is often required to create wealth, prosperity, advancement of society and the creation of businesses.

Paraphrasing is never good so I suggest you read the book, but there is a chapter on how all the Dutch shipping companies knew that the spice trade was where the money was at, but funding 6 month long expeditions was just not possible with the capital they had. I.e. they didn't have enough cash to fund their expeditions, as there just wasn't time to save up for the journeys. So a credit / borrowing market was created to fund the journeys. And it worked. A variety of people lent money to the shipping companies who could then fund massive voyages to the East to bring back valuable spices. The spices were sold, people either had their money paid back or those that had bought stock (I believe this concept was invented through the Dutch shipping industry) saw their value go up. This credit / debt was necessary to start this industry and, by and large, it worked as it made that area an industrial powerhouse. The shipping companies were happy, lenders were happy, investors were happy and people who wanted access to the profits to then do other things were happy. Debt creating wealth, in other words.

I'm obviously not saying that the housing market is exactly the same, but the parallels are there. People borrow money from banks to buy houses, which they then successfully pay back with interest. This interest is used for a variety of things, including paying interest to savers, being loaned out to start businesses, used by the bank to make profit (hopefully). Again, this is my very simple explanation, and it's not a perfect financial model, but show me one that is. All I'm saying is that it works much better than everyone saving up for twenty years to have enough to buy a house in cash.

I suppose going backwards though this shows just how constricted lending is.
The people paying cash obviously have the money, which would be generally savings. So banks are not lending out this money (savings), in return the saver is not getting the return he wants (interest).
So saver turns to cash buyer to get the return he/she wants as they can't get it through the usual means.
So until balance sheets are back to where banks want them, it looks like potential borrowers and savers will get a rough deal.
So constricted lending affects savers just as much as potential borrowers.

Cleaver

Graham_Devon wrote: »

Where did I even suggest saving 20 years to buy a house? I'd agree with you there. But taking what I said and then applying 20 years saving to it is a bit off.

You didn't, but I was responding to your comment that a cash only market for houses is one that works. And I just thought that twenty years is probably about the length of time it would take someone to save up for the average house.

Thrugelmir

Cleaver wrote: »

Just on this point, I'm currently reading 'The Ascent of Money' by Niall Ferguson which is an entertaining read.

A must read in my view. Highly informative.

Graham_Devon

Cleaver wrote: »

You didn't, but I was responding to your comment that a cash only market for houses is one that works. And I just thought that twenty years is probably about the length of time it would take someone to save up for the average house.

But I never said that either

How you get "a cash only market" from this is beyond me.

If people are buying homes with cash, brilliant! No problem with that, it's great news. That's a market working for you.

I'm all for dicsussion, but that holier than thou attitude you came over with after implying I'd said stuff is a bit annoying.

julieq

Graham_Devon wrote: »

No. You weren't under fire. And no, thats npt what was said.

What was said was BTL can replace FTB's now, in the short term.

But you need FTB's to buy 2nd and 3rd time buyers houses off them so that the chain keeps moving.

No you don't. You don't need owner occupiers at all, you don't need chains. You just need people willing to pay money to live in a house and a shortfall between supply and demand, and capitalism will do the rest.

Which is what I was saying a few weeks ago, and which is being borne out now by a succession of reports and surveys.

The solution is to build more and lend more, and Derv - hardly an arch bull - provided a very elegant solution to that a little while ago, targetted at young prospective owner occupiers.

Thrugelmir

History appears to be repeating itself. Perhaps fewer people are buying retirement property abroad in the current climate.

From the CML November 2004.

Nearly a quarter of all properties are bought for cash according to an article in the latest issue of the CML journal Housing Finance. The survey also shows that over 50% of all cash buyers have an annual income of less than £15,000, which given the age profile is likely to be pension income. The CML survey finds only 3% of cash buyers have an income over £50,000 compared with 13% of borrowers. This is in contrast to media reports which associate cash transactions with high earners.

The survey also asked cash buyers how they raised the money to purchase their property. Two-thirds used equity from the sale of a previous property as the main source of funding for their cash purchase. A quarter contributed savings towards the purchase, but only 16% used savings as the primary source of finance.

A primary motivation for cash buyers was to move to a smaller or cheaper property; which contrasts with mortgage borrowers' main reason for moving which is to trade up to a larger property. For some cash buyers, trading down can eliminate monthly mortgage payments and free up remaining equity from the previous property to supplement income. However, it is also likely that older households trade down simply to move to a smaller more manageable property.

The older generation trading down account for the bulk of cash purchasers. But, among owners of second homes, there is also a higher incidence of cash buyers accounting for 35% of all purchases. This is particularly true if investors are using the proceeds of one property to fund others.

geneer

julieq wrote: »

Actually Graham, my "wild theories" work a lot better than yours in making substantive predictions which are born out by events. I think it was, what, 2 or 3 weeks ago I was under fire for suggesting that you don't need first time buyers to sustain the market because of rental yields.

Bullish poster regurgitates VI meme shocker!
Trying to figure out the "predictive" part jules.

DervProf

julieq wrote: »

The solution is to build more and lend more, and Derv - hardly an arch bull - provided a very elegant solution to that a little while ago, targetted at young prospective owner occupiers.

Thank you juileq, I'm pleased my idea (which I obviously thought was really sensible, and more importantly very possible) was welcomed by a couple of "you lot" .

As I said earlier, the only other "solution" is to limit population growth. Something has to be done, or else it's big trouble ahead (not so much for those that are "allright Jack", and that includes myself). Now would be a good time to start the building, if that's the option we are going to take. It would be a nice boost to the economy, and it would get some of the unemployed and semi-unemployed builders back to work. It will also have a positive knock-on effect for other businesses too.

Thrugelmir

DervProf wrote: »

As I said earlier, the only other "solution" is to limit population growth.

We currently have around 2 bedrooms available for every person living in this country. So far from the cramped conditions of years gone by.

Cleaver

Graham_Devon wrote: »

But I never said that either

How you get "a cash only market" from this is beyond me.

I'm all for dicsussion, but that holier than thou attitude you came over with after implying I'd said stuff is a bit annoying.

I'm thoroughly confused and I think we're only on the first page. Whatever you said you didn't say Graham is fine, I agree you didn't say it. And I apologise for saying stuff about stuff you didn't say when you said something that I thought said something different from what you said. If you see what I'm saying.