House prices are rising – that's a fact – but when it comes to the average price of a UK property it can get a bit more confusing. Every few days it seems there's another House Price Index released that proclaims the new "average" property price for the month – but each report is invariably different, sometimes by a considerable amount, often posting variations of tens of thousands of pounds.
So, why are they so different? And which one, if any, should we take as being the most accurate? It's difficult to know which way to turn, particularly if you're thinking of moving and need to know what kind of mortgage you'll be looking at, so we thought we'd help clear the confusion by looking at each index to find out more about how their figures are calculated.
First up, we'll look at the reports from two building societies. Both of these indices take into account the whole of the UK, but both base their figures on a sample of their own mortgage lending – and therefore don't take into account any cash-bought properties. This means a significant section of the market will be overlooked with these indices being less comprehensive than some of the others, which could potentially have an impact on the resulting average figure.
Nonetheless, the data is seasonally adjusted and fine-tuned according to location to create "representative" house prices, although both indices have their own methods to arrive at what is regarded as a "typical house" – for example, Nationwide removes extremely small and large properties, as well as buy-to-let and Right to Buy, again sidelining significant sections of the market.
The Government department that records land and property ownership releases another index. It doesn't take into account properties in the whole of the UK but just those in England and Wales, and like Halifax and Nationwide it also uses seasonally-adjusted data – but, unlike the building societies, it bases its figures on the actual prices paid for property at completion, taking into account both cash and mortgage purchases, as reported to the department.
The figures are based on repeat sales and only take into account properties that have been sold twice since 1995, but as the index uses official transaction data it's regarded as being one of the most reliable and authoritative. Incidentally, as the data comes at the end of the purchase it can be many months before it's collected, meaning this index (and the resulting average figure) is therefore a better interpretation of a trend rather than a prediction of future prices.
This is yet another house price index, albeit somewhat less well-known than the others having only been around since 2003. This index actually uses a combination of data taken from the Land Registry as well as data from other indices to give a more predictive angle, with the figures being mix-adjusted to provide an average price that takes into account the different types of property that are sold each month in different locations.
Another Government-backed organisation that calculates house prices, this time its calculations are based on the average price on completion for a property in the UK , using figures taken from a sample of mortgage lenders. It uses both seasonally adjusted and un-touched figures and then mix-adjusts the data to reflect different locations and property types, and it's also weighted to reflect volumes of transactions. It's one of the most complex indices used, and because it uses changed weightings its prices can't be reliably compared on an annual basis.
This one is very different from the others in that it bases its calculations on sellers' asking prices when they put their homes on the market – so at the opposite end of the scale to the Land Registry's index, which uses actual sales prices. However, Rightmove claims that it covers around 90% of all properties for sale, although it's a volatile statistic as it can rise strongly during optimistic periods in the market but can fall back just as quickly.
the Royal Institute for Chartered Surveyors (RICS) relies more on surveyor sentiment, with it giving monthly updates on where its members predict prices and levels of activity to be heading. Zoopla, a rival to Rightmove, publishes monthly statistics that are again based on sentiment, but this time it tracks homeowners' expectations of price movement rather than surveyors'. Meanwhile the Council of Mortgage Lenders and British Bankers' Association both produce monthly reports on mortgage approvals and lending volumes.
This hopefully outlines a few of the facts about how these indices arrive at their average house prices, but overall, it's a tricky call to make as to which is the most accurate. It's often best to use these prices as a general guide rather than a basis on which to buy and sell your home, particularly as what's happening in your area could be widely different to the national average.
Where you're planning to buy, and the type of property you're looking at, will both make a huge amount of difference to the price. You should do your own research on a local scale – compare the sale prices of similar houses on the same street or nearby to get a more accurate, localised view, and it'll help when applying for a mortgage so you know what kind of loan you'll be looking for – but keep average house prices at the back of your mind to give you a decent understanding of the market as a whole.
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