House shape metaphor

In January 2014, UK house prices rose on average by 8.8% on an annual basis vs January 2013.  They also rose on average by 7.5%.  Oh, and they also rose on average by 4.4%.

The above figures are taken from three of the leading house price indices, produced respectively by Nationwide, Halifax and the Land Registry.  Throw in the market sentiment index published by RICS and there are four leading indices of house prices – four indices that often provide conflicting stories.

Why are these indices producing different results?  Are they more coherent over time?  And why should we care about their conclusions anyway?

The various house price indices analyse slightly different data using slightly different methodologies.  Briefly:

  • Nationwide and Halifax indices are based on mortgage approvals from those lenders (not actual sales), weighted to take account of various factors such as the type of housing stock sold, seasonal adjustments etc.  They cover the whole of the UK and have the longest history.
  • The Land Registry relies on actual sales data in England and Wales and includes cash purchases.  However it is published roughly two months after the completion of any purchase and so suffers a time lag.
  • The RICS Housing Survey takes a different approach and publishes a snapshot of opinion amongst their members as to the direction prices are taking.  There is no data involved but it remains a useful indicator of that crucial intangible, ‘market sentiment’.  The most recent survey (December 2013) showed a +58 score in respect of whether RICS members expected house prices to rise or fall – “…one of the highest readings since the series began in 1998.”

Looking historically, the main indices approximately correlate, as evidenced by the below table referring to annual changes to national house prices:

Index Annual change 2003 Annual change 2008 Annual change 2011
Nationwide

+15.5%

-14.7%

+1.1%

Halifax

+16.1%

-16.3%

-1.4%

Land Registry

+13.9%

-14.4%

-1.5%

Clearly all indices should be treated with a pinch of salt individually, but together they provide a strong indication of where the market lies.  Anecdotal experience suggests they are also used by certain lenders for valuing properties for internal re-mortgages (i.e. where a borrower switches product with the same lender).  Here borrowers can find themselves the wrong side of crucial loan-to-value (LTV) ratios where lenders rely on general statistics (perhaps on a regional or national basis) rather than a valuation of an individual property.

Accepting there will remain large regional variations, general market sentiment suggests prices will continue to rise at around 5% per annum nationally, for the next few years, as the likely tapering of Government led stimuli (historically low interest rates as well as schemes such as Help to Buy ) is countered by pent-up demand from Joe Public.

For more information, email blogs@gateleyuk.com.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.