From the official government UK HPI to Halifax, Rightmove and more, no week seems to go by without a new and often contradictory take on the latest house prices. Annabel Dixon explains how they all work, and which house price indices are worth listening to.
Google ‘house prices’ and you’ll get a sense of the wealth of research and data there is on the topic.
But there’s a problem: the various ways of measuring house price — the house price indices, as they’re known — all show slightly different things. All use different data sources, definitions, sample sizes and methodologies, and with every altered variable its inevitable that the analysis changes slightly. The new result is that one house price index can look very different from another.
You’d be forgiven for scratching your head sometimes. Here’s a quick overview of what to look out for.
What asking prices tell us about the property market
First of all, there is pricing information about homes that are on the market. Property portals Rightmove and Zoopla shine a spotlight on asking prices as well as other housing market activity, such as buyer demand and supply of homes for sale. This type of intel is based on properties listed for sale on their websites. It’s a handy barometer of sentiment in the housing market.
But asking prices aren’t the same as sold prices. In the last year alone the housing market has shifted: this time in 2022, houses were regularly being sold at above asking price, with multiple bidders entering the fray; today, with house prices having fairly gently settled down in recent months, vendors are being realistic about accepting offers.
How mortgage agreements show the state of play in housing prices
Some of Britain’s biggest mortgage lenders also produce their own house price figures. The big two are the Halifax and Nationwide house price indices, based on their own mortgage approvals for property purchases that are in progress. They reflect the state of play a bit further down the home-buying line, and therefore paint a pretty accurate picture of property values.
What they don’t reflect, however, is any last-minute haggling over price — something which is common in a falling market, particularly for those who might have agreed a price several months earlier.
It’s also worth remembering that they don’t take into account homes bought with cash: according to the government, 30% to 40% of sales are completed as cash purchases. This is particularly true of the most expensive properties on the market — and yes, that does include many featured here at Country Life — since high net worth buyers rarely have to worry about borrowing.
Why official government house price figures are the most accurate — yet also by far the slowest
The ultimate way of measuring house prices, of course, is only to look at the property sales that have actually crossed the line — and that’s where the government’s UK House Price Index (UK HPI) comes in. It’s based on completed sales, including both cash and mortgage transactions.
In terms of house prices, this is as definitive as it gets. The index uses data from Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland, and is calculated by the Office for National Statistics.
But there’s another problem. Each property sale only appears in the index once they have been registered at the very end of the conveyancing process — and that takes time. The delay is typically between two weeks and two months, though in the case of some purchases (particularly new builds) it can take even longer. Still, like the little engine that could, it gets there in the end to produce the most accurate picture of the market — though one that’s only complete months after most of the buyers are safely in their new homes.
Who to trust on house prices?
All this leaves you with a conundrum The indices which rely on asking prices take the temperature of the market constantly, but reflect sellers’ and agents’ hopes rather than concrete reality; lenders can turn around their latest house price figures within a week or two of the end of each month, but don’t cover the whole market; and the monthly UK HPI is normally released with a six-week time lag. Even then, it’s not accurate since many sales take far longer for all the paperwork to be finalised. The UK HPI does get there in the end— it’s regularly revised as more data is incorporated — but by that point it’s probably more used to economic historians than people looking to move in the next year.
Gareth Lewis, commercial director of property lender MT Finance, summed up the challenge when he commented last month on UK HPI data for December, published in February: ‘These end-of-year stats reflect completed transactions that were put into play a good few months before, so we are still not seeing the full mini-Budget fallout and impact that will have had on buyers trying to push prices down.’
Can you trust any of the house price indices?
The simple fact is that there’s no single, simple way of being able to measure what’s going on. There are some attempts to bring things together: Zoopla’s index, for example, is based on the valuation model of house-valuing specialists Hometrack, which tries to bring together sold prices, mortgage valuations and data for agreed sales. But that sort of thing relies upon a valuation model — and no mathematical model is ever without its flaws. Some, indeed, might prefer the human touch: if so, the Royal Institute of Chartered Surveyors (RICS) sentiment survey, which collates the opinions of the UK’s estate agents and surveyors, is always an interesting read.
None of this is to say that the indices aren’t worth studying, if you’re thinking of taking the plunge and buying a house. ‘House price indices in general are an interesting economic barometer,’ Tom Bill, head of UK residential research at Knight Frank. ‘They reflect broader factors, such as what’s happening to interest rates and employment levels.
‘These things all have a bearing on sentiment in the housing market,’ adds Tom, ‘but they don’t necessarily tell you very much about what is happening on your street.’
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