Why are they all different?
There is one good reason why every house price index gives different results – they all use different data and do different things with it!
The problem is that they aren’t always very up front about this – so here’s our insider’s guide to house price indexes.
We’ll help you understand what information each house price index uses and what their figures mean.
Who produces the house price indexes
There are three main types of organisation that produce house price indices:
• Mortgage lenders
• Estate agents and related businesses
The Mortgage Lenders
Two of the biggest and most popular house price indices are those run by Halifax and Nationwide – two of the UK’s biggest mortgage lenders.
They each base their house price index on the agreed sale prices of their customers’ houses – i.e. the properties they are providing mortgages for.
Given that, you might expect them to be quite close to each other – and they are, sometimes.
However, each organisation applies some extra calculations to the data, known as ‘seasonal adjustment‘.
This is intended to smooth out the seasonal peaks and troughs – such as over Christmas, when no one buys.
Each lender’s seasonal adjustments are a bit different – giving slightly different results.
Government Organisations
The main government-backed house price index comes from the Land Registry.
They process all property sale details for every property in the UK – and they use this information to create their own house price index.
The Land Registry’s index has several advantages over most others:
• It is based on completed sale prices
• It includes properties bought with and without mortgages
• It includes all properties bought and sold in England and Wales
On the other hand, it does have one big disadvantage:
House sales usually take 2-3 months to complete – so the Land Registry’s index lags behind indices based on asking prices or agreed mortgages.
This means it isn’t very useful if you need to know what the housing market is doing right now.
Estate Agents & Related Organisations
The final class of house price index uses information that comes from the people who sell properties – estate agents.
The most popular example of this type of index is the Rightmove HPI. This uses the asking prices of all the properties being advertised on its website – usually around 75% of the total for sale in the UK.
This approach has several advantages:
• It reflects the latest market trends
• It includes a very large sample of properties
There is one main disadvantage, however:
• Houses often sell for less than the asking price, as most buyers make offers. Rightmove’s index doesn’t reflect actual sale prices.
This probably helps explain why Rightmove’s average price is so much higher than all the others.