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 house prices in the three months to May 2014 were 2% higher than in the three months to February 2014 (source: http://www.lloydsbankinggroup.com/Media/economic-insight/halifax-house-price-index/) and 8.7% higher than May 2013.

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 “seasonably 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 UK house prices increased by 0.7% in May 2014 and are 11.1% higher than May 2013. (Source: http://www.nationwide.co.uk/about/house-price-index/headlines). However, Newcastle was identified as one of the worst performing cities with prices rising just 3% over the past year (Source: http://www.nationwide.co.uk/~/media/MainSite/documents/about/house-price-index/Q1_2014.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 seasonably 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 UK prices went up 0.1% in June 2014 and 7.7% over the past year with the average asking price now £272,275. (Source: http://www.rightmove.co.uk). However, prices in the North region decreased by 0.8% in June 2014 and by 0.5% over the past year.

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.

The April 2014 data shows an average house price in England & Wales of £172,069, compared with a peak of £181,572 in November 2007. The North East experienced the only annual price fall of 1.9%. (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 house prices in the UK increased 0.5% in May 2014 but were static (0% change) in the North East. (Source: http://www.hometrack.co.uk/hpsurvey/documents/Hometrack_Monthly_National_Housing_Survey_May_2014_29052014162451.pdf)

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/)

Office of National Statistics

The ONS House Price Index (HPI), previously published by the Department for Communities and Local Government (DCLG), gets its data from the Council of Mortgage Lenders, which in turn gets its figures from mortgage lenders. This means it doesn’t include figures for cash purchases.

The index shows the average price on completion for a property in the UK, and annual and monthly changes. However, there’s a bigger time lapse then other indices – figures are two months behind.

The latest figures, released in June 2014, show UK house prices increased by 9.9% in the year to April 2014. (Source: http://www.ons.gov.uk/ons/rel/hpi/house-price-index/april-2014/index.html). In the north east prices went up by 6.8% year-on-year.