Perplexed landlords can delve into the confusing and complicated world of how house price indices work and why the results vary so much through a new briefing document issued by industry experts.
The Institute for Fiscal Studies report looks at each of the major house price measures and explains how they are based on different data samples that introduce a bias into their calculations.
The six major house price indices are:
The study found that the average UK house price varies significantly above and below £200,000, depending on the index.
The reasons for this, explain the writers, are:
- Price base: Some indices base prices on mortgage valuations and not completed sales. These tend to be those provided by mortgage lenders, with valuations set on mortgage offers, or valuations. Rightmove tends to use asking price data
- Sample size and coverage: Lender data is limited to their customer base and the number of mortgage applications triggered by their marketing, as well as the areas of the country where they operate
- Sales v cash sales: Not all home purchases are with mortgages, many are cash sales. These are included in the Land Registry data – which provides the statistics for the LSL and Land Registry average house prices, but not the ONS, lender or estate agent listings
- Sale frequency: The land Registry index is based on homes that have been sold at least once previously – so excludes new builds. Because of this, the index has a bias towards properties sold more often than others – for instance starter homes
“The indices also differ in when in the process of the transaction the price is measured: whereas the Nationwide and Halifax indices are based on valuations for mortgage approvals, the Land Registry and ONS measures are based on actual property transactions,” said the report.
“Because some properties that receive a mortgage offer are not in fact sold, the Nationwide and Halifax measures may provide a biased estimate of sale prices.
“However, the advantage of publishing data based on approvals is that these indices are more timely: there can be a lag of up to a few months between an offer being accepted (Nationwide and Halifax), a mortgage being completed (ONS) and a property being registered with the Land Registry.”
Download a copy of the report