Cash buyers fuel the housing market paradox of rising prices and high volumes

In his latest column for The Scotsman, David Alexander highlights how cash buyers are contributing to rises in house prices, and are also a major player in maintaining the number of properties coming to market.

Scotland’s housing market has going through something of a paradox in the last year or so. We have seen generally steady, and sometimes very strong, price growth at the same time as the volume of properties for sale has remained high. Normally when volumes are high prices stabilise or even fall but something unusual has been happening where the volumes are up, and the prices are up.

This would indicate that demand is substantially higher than normal and, despite increasing volumes, the number of properties for sale is still not meeting demand, resulting in rising prices. Of course, this is not a universal situation across all of Scotland and there are pockets which are doing well and others less so.

Our recent analysis of the figures showed that on average Scottish house prices rose £7,599 over the last year with the highest figure in East Renfrewshire – increasing by £28,358 last year – and the lowest a fall of £8,354 in Dumfries and Galloway.
Despite these variations only three areas recorded a fall in prices and 22 had an annual increase so the market is doing reasonably well across much of Scotland.

In the first ten months of last year the number of cash buyers in the Scottish market rose by 34.8 per cent.

Currently, the number of properties advertised for sale in Edinburgh is up 16 per cent year on the year to February 2024; up 10 per cent in Dundee; 9 per cent higher in Perth; and is static in Glasgow. Given the recent price rises it is remarkable that we still have a combination of increasing volumes and rising values.

But perhaps part of the reason for this can be explained by the rise in the number of cash buyers. In the first ten months of last year the number of cash buyers in the Scottish market rose by 34.8 per cent and accounted for over two thirds (37.4 per cent) of all sales in October 2023 (2,890 of 7,722 sales).

Glasgow and Edinburgh accounted for almost ten per cent each of these cash sales and this is an interesting shift in the market and one that clearly is outside the mortgage market and hence may be one of the reasons why the Scottish market has remained so resilient despite rising interest rates.

Cash buyers will be made up of a mix of downsizing retirees, investors from outside Scotland, second home buyers, and perhaps those who have inherited funds or received a windfall of some sort. That these now number in the thousands is an interesting influence on the market, which was not unknown in the past, but the high percentage of overall sales is somewhat higher than might be expected.

Given these circumstances you would anticipate that with cash funding a third of the market then house prices become more resilient to interest rate fluctuations, and less susceptible to shifting property moods. With a core buying public that has cash and wants to buy and live in Scotland they can do this regardless of any market or financial conditions.

This, of course, reflects the attractiveness of many parts of Scotland to national and international buyers and is one of the reasons why the Scottish market has continued to buck the UK trend for house price slowing or stagnation. I believe that this will continue in the coming year, and indeed, for many years to come because the elements that make Scotland attractive to buyers remain in place.