About 25,000 homebuyers a month are paying cash for homes - and accounting for about a third of all transactions in a market which remains worryingly slow, says a new analysis.

Paul Diggle, property economist at the consultancy Capital Economics, says:
"Although there have been some discrepancies in the estimates at any one time, the average number of cash transactions since 2005 is between 23,000 and 26,000 per month, depending on the method of calculation used, which is between 25 per cent and 27 per cent of all transactions.

"At prevailing activity levels, cash transactions around 25,000 per month would represent about 35 per cent of all transactions."

Paul says cash purchases are running at a higher rate than usual because house prices are 10-20 per cent off their peak, while returns on cash are 'typically negative' in real terms.

Hence there is a strong incentive for holders of cash to get into bricks and mortar.

However, it could be that downsizers buying smaller homes are really driving the rise in cash deals.

"Downsizers who expect further house price falls have an incentive to act sooner rather than later" he says.

"One interpretation of the data might be that investment demand is rather more muted than it is often portrayed to be, and that downsizers remain the primary driver of cash-buying activity."