The problem is that since the credit crunch, property prices aren’t reacting in the same way. Pre credit crunch, most prices just went up, down or stayed the same – right across an area.

However since the credit crunch, the number of buyers and sellers has dropped significantly and as a result prices are very much being dictated to by what’s for sale versus the number of people who want to buy, at a local level.

Now the number of buyers looking is still influenced by the availability of mortgage lending, but according to Savills 35% of people who bought in the 12 months to June 2013 did so with 100% of cash and didn’t need a lender at all.

Even more amazing is of those that did need lenders money to purchase property, Savills data shows that of the money spent on property, 62% was cash and only 38% was borrowed.

What impact does cash have on the property market?

Many people are still predicting and in some cases hoping property prices will continue to crash as they ‘over valued’.

They believe property prices are ‘over valued’ because of a long term measure which has long since been beaten by buyers. Up until 2000, when average property prices went above four times income, prices fell back. However, since then, even during one of, if not our worst recession as a country (we are 62 months into it, in the 1930s, we started to climb out of recession after month 30) property prices have not dropped back this far.

According to Nationwide (see chart below), average property prices are now running at around five to 5.5 of average incomes. If we didn’t go back to this long term rule over the last six years, it’s unlikely we ever will.



And the reason for that is two-fold. Firstly it’s because of cash. In the past people needed high loans to value to afford a property, whereas with the growth in property prices and as people have now been owning properties since the 1950s, people have a lot more equity to purchase than in the past.

Secondly it’s because interest rates have fallen so dramatically. During much of the late 80s and 90s, interest rates were in double figures, reaching 15% at one stage in the mid-1990s. So although the Nationwide chart shows that the average property price versus wages was very low in the 1990s, suggesting property was very affordable, the mortgage cost was much higher than it is today.

Finally, low mortgage interest rates we see today of sub 5% coupled with the cash being recycled from one generation to another for deposits, mean the relationship between property prices and wages does appear to have been broken long term.

So bearing all this in mind, what does this mean for buyers – how do you know when it’s a good time to buy.

Here are my top three checks to make to see if your local market and the market for your property type have ‘bottomed out’ and now is a good time to buy:-

1. Go to the Land Registry ‘search the index’ and see whether property prices month by month are stable, growing or still showing signs of falling
2. Look at sold property prices on sites such as www.mouseprice.com to find out whether the property type you are interested in, eg a terraced house are going for more money than they were bought for in 2007, less money or about the same, this will give you an idea of whether prices have recovered or not
3. Make sure you talk to local estate agents to understand what supply and demand is like for the property type you are buying and keep in touch with them to make sure you are always ‘top of mind’ when they visit a property for an instruction

For more help, sign up for FREE property checklists to help you find your perfect home, first time buyer quick guide, evaluate your local market or help to buy