Understanding House Price Indices

Discussing house prices has become something of a national obsession with homeowners and potential first-time buyers alike keen to track the value of property in their area.

There are plenty of house price indices available to help people follow house prices. Indices have been around in various forms since the 1950s and were first provided by mortgage lenders but are now also produced by Government bodies and property websites.

However, the findings are often conflicting and can be confusing. This is because each index is based on a different set of data – so we’ve explained how the different house price indices work.

Halifax house price index

The latest Halifax house price index shows that in the three months to January 2018 house prices were 2.2% higher than in the same three months a year earlier (source: http://www.lloydsbankinggroup.com/Media/economic-insight/halifax-house-price-index/)

As the name suggests, this index is compiled by Halifax (now part of Lloyds Banking Group) and it has been going since 1983. The index is compiled using price agreed data on property bought using a Halifax mortgage. It tracks the price of a “typical house” in the UK showing the percentage change in the price over the month, quarter and year. It uses figures up to the last day of the previous month – so it’s pretty up to date.

The Halifax house price is “seasonally adjusted”. The methodology published alongside the house price index explains what this means: “House prices are seasonal with prices varying during the course of the year irrespective of the underlying trend in price movements. For example, prices tend to be higher in the spring and summer months when more people are looking to buy. We therefore produce seasonally adjusted series to remove this effect and to allow us to concentrate on the underlying trend in house prices. These seasonal factors are updated monthly.”

Nationwide house price index

Nationwide building society has been publishing house price data since 1952 on a quarterly basis and 1991 on a monthly basis. Its latest figures suggest that the annual rate of house price growth picked up to 3.2% at the start of 2018, compared with 2.6% at the end of 2017. House prices increased by 0.6% over the month, after taking account of seasonal factors, the same increase as December (source: https://www.nationwide.co.uk/-/media/MainSite/documents/about/house-price-index/2018/Jan_2018.pdf).

The Nationwide house price index is compiled using the average price agreed on a property bought using a Nationwide mortgage and covers the whole of the UK.

Like the Halifax index, Nationwide tracks the price of a typical house and figures are seasonally adjusted.

Rightmove

Property website Rightmove calculates its house price index in a completely different way from either Halifax or Nationwide. Instead of using mortgage sale price, it uses the asking prices of property displayed as for sale on its website which is about 90% of properties on the market.

The latest Rightmove figures show that the average price of property coming to market is up to 0.7% (+£2,067) this month on Rightmove, similar to the 0.6% rise at this time a year ago. In the North East the average house price in January 2018 is £141,155 (source: http://www.rightmove.co.uk/news/house-price-index/).

Unlike Halifax and Nationwide, the Rightmove index is not seasonally adjusted. One possible flaw with the Rightmove index is that asking prices tend to differ from sale prices.

Land Registry

When properties are bought and sold the transaction has to be registered by The Land Registry, a Government agency. The Land Registry releases a monthly house price report based on completed sale figures, whether or not the property is mortgaged – so it includes cash buyers.

As of November 2017 the average house price in the UK is £226,071 and the index stands at 118.57. Property prices have risen by 0.1% compared to the previous month and risen by 5.1% compared to the previous year. (source: http://www.landregistry.gov.uk/public/house-prices-and-sales)

The Land Registry index is seasonally adjusted but doesn't reflect the prices paid for new-build properties or those that haven’t been sold at least twice since 1995.

Hometrack

The Hometrack house price survey was first published in 2000 and is based on a monthly survey of estate agents across all postcode districts across England and Wales.

Its most recent figures show that UK city house price inflation slows to 5.4%. Weak price growth in London (+1.8%) offsets continued robust growth in large regional cities. Edinburgh, Birmingham, Glasgow and Manchester all registering growth of over 7% per annum. (source: https://www.hometrack.com/uk/insight/uk-cities-house-price-index/december-2017-cities-index/).

As well as sale prices, Hometrack also looks at the average time to sell, the sale price as a percentage of the asking price, and other factors such as viewings per sale. However, it uses a low sample size, looking at about 6,000 properties each time.

RICS

The Royal Institute of Chartered Surveyors (RICS) releases a monthly house price index. But it doesn’t look at sale or completion prices. Instead it questions about 300 surveyors who value property and asks them if they are generally seeing prices move up or move down. As such it’s a “sentiment indicator” of conditions in the market (Source: http://www.rics.org/uk/knowledge/market-analysis/rics-residential-market-survey/)