If you’re a homeowner your property is likely to be your biggest financial asset and its value of utmost importance. But with conflicting reports from the media, how can you really know what's happening to the UK housing market?
The value of bricks and mortar has soared over the last twenty years and you may have found yourself looking at your property in a different way; as an investment as well as a place to live.
Property value is no longer just the concern of wealthy landlords, and TV shows like 'Location Location Location' and 'The Property Ladder' are never far from our screens.
Yet following the banking crisis, reports of an impending slide in house prices have become a favourite topic for the news, and those who provide the data on the property value have been thrust into the spotlight.
Numerous organisations report on trends in the housing market but the media have a tendency to report only those that generate the best headlines (generally the one that shows the biggest change).
Whether you’re looking to buy or sell knowing if prices are rising or falling can have a big impact on your decisions, so who should you believe?
We investigate the major assessors of the UK housing market to see whose data paints the most accurate picture of property price trends:
The Land Registry:
The Land Registry proudly states on its website that its housing data is “the most accurate independent house price index available” but can you take their word for it?
The Land Registry works by comparing current house sale prices of the 15 million properties on its registry to the amount they were valued at in 1995 - thus calculating the indexed difference in price.
As with other housing indices the Land Registry’s data is dependent on the number of properties sold during its monthly survey period (each index is published on the 20th working day of each month).
A significant benefit of the Land Registry index is that it includes cash purchases as well as mortgage data in its housing index. Many argue that this gives a more accurate reflection of what property is actually worth and how prices have changed over time.
This is because houses bought outright in cash may differ in price from those with purchased using a mortgage (often a cash buyer can obtain a cheaper purchase price) meaning the Land Registry captures a full view of the housing market unlike other indices.
The Land Registry also offer a service that enables you to search the sales history of a region, county or even a specific property you might be interested in buying. This means you can see how property prices have changed in recent years in an area you might be considering moving to, or how the value of your home has fluctuated.
One drawback of the Land Registry index, however, is the time it takes to collect the index data, which can mean that published information can be based on completion data up to 2 months old.
This would mean that if there were any sudden drops or jumps in the housing market you would be unaware of them if you only looked at the Land Registry index.
Pros:
- Includes cash purchases providing a more comprehensive valuation of house prices
- Large sample size of 15 million to draw from each month - although actual size depends on the number of properties sold
- Offers extra services relating to property prices on a regional level
Cons:
- Time lag is between gathering data and publication is greater than other indices
- Only includes properties in England & Wales
Communities and Local Government:
The Communities and Local Government department launched its monthly house price index in September 2003, It is the official government housing index.
The Communities and Local Government data is released on or between the 10th and 16th of each month and evaluates house price data from 2 months previous - so November’s index consists of sales made during September.
The sample size for the monthly index is based upon property prices collated from an average 25,000 mortgage completions and provided by 49 different mortgage lenders.
As the house price trends it reveals are based on information from a variety of lenders, it provides a broader analysis of the housing market compared to indices comprised by individual mortgage lenders such as Halifax or Nationwide.
However unlike the Land Registry, the Communities and Local Government index does not incorporate cash purchases into its housing data meaning it does not capture a full sample of sale prices.
Pros:
- Large sample size
- Data from a range of Lenders so not limited to an individual mortgage provider
- UK-wide data
Cons:
- Excludes cash purchases
- Slower than the Halifax & Nationwide indices as data is taken from mortgage completions rather than approvals
Royal Institute of Chartered Surveyors:
The RICS Housing Survey offers something slightly different to other indices that generate average house prices and market trends.
The Housing Market Survey it publishes each month highlights trends in the housing market based purely upon the opinion of its members, not on actual property sale data. As such it's more of a snapshot of professional opinion about the housing market rather than a statistical report.
For instance, the October 2010 survey had contributions from a total of 278 chartered surveyors based in 421 offices, each providing data from several cases for inclusion.
However, it is an arguably valuable measure as it offers market opinion from its contributors as well as comments on the level of business and the attitudes of clients.
Pros:
- Very quick information providing a more immediate indication of recent housing trends and professional opinion
- Extra information on other areas such as time taken to sell
- Includes surveyors expectations for coming months
Cons:
- Based upon opinion rather than property sales
- Relatively small survey size compared to other indices
- Does not provide an indication of average house prices
Halifax:
The Halifax House Price Index is the UK's longest running monthly house price series with data covering the whole country going back to January 1983.
As the country's largest mortgage lender, Halifax take their index data from their mortgage approvals, which they state "provides a robust and representative sample of the entire UK market".
However, exact details of Halifax’s sample size are a closely guarded secret, meaning it is difficult to compare the validity of the index compared to the other sources listed above.
Despite this, the Halifax index does benefit from gathering its data from mortgage approvals rather than mortgage completions. This means that the data used to generate the index each month is newer and so gives an earlier indication of market trends.
Essentially they are about a month ahead of the game when compared to other housing indices.
Pros:
- Halifax base their information on approvals rather than completions meaning the data included in each survey is based on up to date prices
- Seasonally adjusted data
Cons:
- Unknown sample size
- Excludes cash purchases
- Only includes Halifax mortgage completions
Nationwide Building Society:
The Nationwide Building Society has been releasing housing data since 1952 and on a monthly basis since 1991.
Like Halifax, data on the exact sample size that generates Nationwide’s housing index is deemed 'commercially sensitive' and remains unknown, but they state on their website that it is a "sufficient sample size to produce a representative house price series".
Nationwide also seasonally adjust their data, as the cost of house is generally lower in the winter months than during the summer. This means you can compare the value of a property more accurately over time as the influence of the seasons have, in theory, been eliminated.
Pros:
- Nationwide base their information on approvals rather than completions meaning the data included in each survey is based on up to date prices
- Seasonally adjusted data
Cons:
- Unknown sample size
- Excludes cash purchases
- Only includes Nationwide mortgage completions
Just how useful are these indices?
In general the above House Price Indices provide a pulse check on the UK housing sector. They are useful in that they provide a high level analysis of house price trends and the level of confidence in the market.
You can also use the information to get an idea of how property is performing in different parts of the UK, or in the case of the RICS, the attitudes and predictions of those that work in the industry.
Additionally many indices generate information on specific types of housing;
Halifax’s rural housing index in November 2010 told us that South Oxfordshire was the most expensive rural local authority district with an average house price of £209,972 compared to East Ayrshire the cheapest average at £107,515.
Ultimately though, while housing indices will give you a broad picture of the state of the market if you are considering selling your property or buying another you will get a more accurate valuation by doing your own research or contacting a local estate agent.
The value of each property is dependent on a wide range of factors some of which - such as size and location - can be take into consideration by indices, but many like quality of local schools and state of repair need to be assessed on an individual basis.
Essentially a housing index may be able to tell you what is happening to the value of property across the UK or in specific regions but won’t factor in local influences.
Use multiple sources
If you want to get a feel for the strength of the housing market before purchasing a property, or working out whether now is a good time to sell yours, the safest bet is to use data from several sources, this will mean you are not influenced by any anomalous results.
Most housing indices should reflect a similar trend in the housing market over the last 6 months giving you an idea if prices are rising or falling.
You should also take reports in the media with a pinch of salt and scratch beneath the surface before getting too excited or depressed about UK house prices - remember getting your information direct from the source means you can make up your own mind about what's happening.
