Understanding the Differences Between UK House Price Indices

Halifax & Nationwide House Price Index

The Halifax & Nationwide House Price Indices are very similar. Both are monthly indices which track changes in the value of mortgage approvals in the UK. So why do there do they differ? Well, it’s their sample data. Both of which use their own mortgage lending data to create their House Price Indices.

Basing an index off your own data means you miss out on the whole market as you are taking a representation of your own customers and applying this to the market as a whole. This being said, Halifax is part of the Loyds Banking Group, making them the largest UK lender! This gives them a boost over their Nationwide rival with a slightly larger sample size (15,000 per month vs 12,000 per month).

The second caveat of this means of data collection is that it is basing their index off mortgage approvals, not completions. Now this is something of a two-edged sword as approval data means it is not as accurate as completions data, but it is more up to date.

This is all due to the length of the house purchasing process. Anyone who has bought a house before knows there’s a number of things that can change, go wrong or just generally seem to take forever between applying for your mortgage and completing your purchase.

This means two things:

1) The mortgage which is approved may not be a reflection on final sale price.

2) Mortgage approvals are an accurate representation of what people are offering for properties right now.

Rightmove Asking Price Index

We are all familiar with Rightmove and for good reason. Rightmove is the UK’s largest property portal, this means the vast majority of UK property is listed on the portal. This is what makes Rightmove’s Asking Price Index so useful. It has a sample size which greatly outweighs the sample size of both Halifax’s and Nationwide’s HPI’s combined.

This all sounds great then, the larger the sample size the better, right? Well once again this House Price Index is not without its limitations. The main limitation in this instance is it is not a House Price Index, but instead an ASKING Price Index.

The differentiation between these is that Rightmove data is focused on the price at which a property is listed, not the price at which it is sold. This means the value quoted by Rightmove may differ greatly from the value of property sales.

Depending upon whether we’re experiencing a buyers or a seller’s market, properties are routinely sold bellow or above asking prices.

This means that although the Asking Price Index is an excellent reflection of changing trends in prices, it may not be an accurate reflection in what your property should be worth.

UK House Price Index

What you may call the “Official House Price Index”. This is based on data from HM Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland. This means it includes the actual values of property sales within the UK. What’s more it’s representative all property sales with the exception of repossession and auction sales.

Actual property sales and the largest sample size of all the House Price Indices, the perfect index to seek reference from?

Well not quite. Where the UK House Price Index falls down is the timeliness of reporting. There is a 6-week delay in the reporting of the UK House Price Index. In addition to this, this reports on completed sale prices, not agreed sale prices.

This means that there will be around a 7-month delay in reporting figures which are applicable to what the agreeable value of the average property is worth as of the present day.

This makes the UK House Price Index great for retrospective property market assessments but there are limited uses when assessing the present-day market.

Summary

To summarise, the different UK house price indices have their all have their uses. Each with a slightly different perspective on the housing market. Each with their different sample sizes, time frames and validity. Not one is perfect, but each provide different insights which can be used to gain a more complete picture of the housing market.