The share of cash purchases in the UK residential property market has hit an all-time high, accounting for more than a third of all house transactions.

Cash boosting the market

The Nationwide figures show that cash buyers made up 38% of the market in the first quarter of this year – 2% higher than the 36% average in 2014.

This increase in cash buyers has helped buoy transaction levels in the market with mortgage lending remaining subdued.

While cash buying was up in the first quarter, overall housing transactions dropped by 5% compared to the same period last year while mortgage completions were down by 11%.

Figures from Strutt and Parker support the Nationwide report with more than half its London buyers using just cash.

Stephanie McMahon, Head of Research at Strutt & Parker, said: “Our buyers consistently use high levels of cash to purchase their homes.

“In London over 54% fund purely with cash, whilst outside London the figure drops slightly to 38%, although this is still substantial.

“The dominance outside of London is still to buy with a combination of cash and mortgage which reflects a need to borrow, albeit, the loan to values are likely to still be favourable towards substantial deposits.”

Financial crisis hit mortgages

The switch from mortgages to cash was in part a reaction to the financial crisis, claims Nationwide.

During the crisis, credit conditions were tightening and the labour market dropped meaning that less people could secure a mortgage. However, those buying with cash felt less of an impact on their buying power.

Nationwide also claims that the current historic low interest rates have seen cash flow into other asset classes, including UK residential property.

House prices on the rise

Despite the rise in cash buyers, UK house prices rose by just 0.3% between April and May.

The yearly figures slowed to 4.6% for the year to May 2015, from 5.2% for the year to April 2015.

Robert Gardner, Nationwide's Chief Economist, says this is part of a gradual downward trend that has been seen in the market since the summer of 2014.

He expects house price growth to meet earnings growth, which has been around 4% per annum.