Analysis of Land Registry data over the past decade by Hamptons International shows that the proportion of properties purchased with cash has hit a five-year low. In the first half of 2018, 113,490 properties were purchased by cash buyers in the first half of 2018. This figure is 21% down annually and makes up only 29.6% of total transactions.
Additionally, out of the properties that were being purchased with cash, an increasing number of these were to live in rather than for buy to let. Property investors accounted for approximately 25% of cash purchases in the first half of 2018, whereas they accounted for 32% in the first six months of 2007.
Leverage is a key factor as to why property is the top performing asset class, especially whilst the price to borrow cash is at historically low levels at the moment. By leveraging an investment, investors have the ability to multiply their cash on cash returns several times over.
A lot of people tend to have a fear of leveraging or taking on debt of any kind (although the statistics above show that this is diminishing), without realising the difference between “good” debt and “bad debt”. Leveraging an investment is a perfect example of a good debt, consider the following example: A deposit requirement of 20% on a £500,000 asset is £100,000. Therefore, using a relatively small percentage of your own funds to make the purchase, as the majority (80%) is being provided by a lender. Assuming the property appreciates at 5% per year, the property would be worth £525,000 – an increase of £25,000. However, with a cash buy of £100,000 at 5% growth, the property would only have increased by only £5000.
Leveraging is a unique advantage to property as an asset class and investment and we always recommend utilising it as highly as possible. If you would like to understand more around this topic or the services we provide here at Nova, please feel free to contact us at 0203800060.