If you follow the property market, you’ll see a constant stream of new UK house price indices being released, often with contrasting results – but how accurate are they really?
After coming under fire for the unreliability of its monthly house price index, Halifax has now released its latest results using updated methodology. The new house price index is said to include more mortgage transaction data and reduced monthly volatility to more accurately reflect the current UK housing market.
While the changes apparently bring the Halifax index onto a more level playing field with other major indices – including its main competitor Nationwide – calculating house prices is not an exact science.
Halifax house price figures out today (on the updated methodology). Has UK August average prices up 1.8%y/y. Still the highest growth of the measures for 2019 on this basis, but much less of a gap. 3 that have reported August so far have price growth between 0.6%y/y & 1.8%y/y. pic.twitter.com/isdxnKJxnG
— Rupert Seggins (@Rupert_Seggins) September 6, 2019
With Halifax, Nationwide, Rightmove, the Land Registry, Hometrack and RICS all releasing a regular index indicating UK house prices, which one should you follow if you want to know the state of the market?
Nationwide uses data from approved Nationwide mortgages, calculated based on owner-occupier house purchase transactions with mortgages (not including buy-to-let or cash purchases). The house prices are mix adjusted, meaning the building society tracks a representative house price over time rather than the simple average price. Using just Nationwide mortgage data means the sample, though large, is relatively limited.
While the Halifax methodology has always been similar to Nationwide – using approved Halifax mortgages to work out house prices – it had been criticised for being outdated and therefore unreliable. Now, the sample size has increased by 35%, and it includes shared ownership, new homes and buy-to-let. As above, limiting the results to use just properties with a Halifax mortgage can mean parts of the market are being missed.
The property portal uses asking prices across the properties listed on its website in order to compile its house price information. According to the site, a sample of up to 20,000 houses is used each month to produce its survey, representing the largest sample available. The downside to this is that asking prices and sold prices can vary, sometimes massively, and the results do not take this discrepancy into account. Zoopla’s house price index works in a very similar way.
HM Land Registry/ONS
The UK HPI is a joint production by HM Land Registry, Land and Property Services Northern Ireland (LPSNI), Office for National Statistics (ONS) and Registers of Scotland. It uses sold house prices collected on residential transactions, including both cash and mortgage purchases. While it is not as timely as the other measures as it based on completed sales at the end of conveyancing, rather than advertised prices, it covers a large sample and is a reflection of actual purchased property prices, so is arguably the most accurate in this sense.
According to Hometrack’s website, it uses a repeat sales based methodology, using ‘pairs’ of price points for properties that have sold more than once to compare price change on a like-for-like basis over time. The challenge with this method is when there is relatively low market turnover and “a lack of homogeneity in housing stock”.
Royal Institute of Chartered Surveyors (RICS)
RICS publishes a residential market survey as opposed to a house price index, which gathers data from industry professionals using a set of questions to report on sentiment within the residential sales and lettings markets. While not useful if you are looking for direct figures, it can give a good indication of the state of the housing market.