House price indexes are painting a mixed picture of the UK property market as rising interest rates and pricey mortgages weigh on demand and buyers’ purchasing power.
The latest data from Nationwide showed house prices fell 3.4% year-on-year in May, while data from the ONS showed prices were up 4.1% in the 12 months to March
These two figures illustrate the conflicting signals the main house price indices are sending today.
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There are at least four main indices – including Nationwide, Halifax, and the Office for National Statistics.
So how do they differ and what does each one measure?
Nationwide House Price Index
The Nationwide House Price Index is one of the most popular indices used in the UK, with data stretching back to 1952.
The data used is the lender’s valuation at the mortgage approval stage – these may differ from the actual sale price, but the idea is that this is near enough to the end of the home-selling process to be a more realistic snapshot than the initial asking prices (such as are used in the Rightmove index – see below).
The index is “mix-adjusted”, which means it tracks a representative home by giving a relative weight given to each property based on its characteristics, such as, for example, the number of bedrooms. The index uses a statistical process called hedonic regression to “relate observed combinations of these characteristics to the house purchase price”, the company says. This prevents price disparities caused by different types of properties being sold each month.
Latest figures: House prices fell 0.1% month-on-month and 3.4% year-on-year. The average price of a house stands at £260,736.
Halifax House Price Index
Halifax’s House Price Index has data going back to 1983 and, like the Nationwide index, is based on the bank’s valuation at the mortgage approval stage. The index hits its 40-year anniversary this year, with house prices up 974% since early 1983, when it began recording data.
A standardised house price is calculated using this data and property price movements on a like-for-like basis are analysed over time.
Latest figures: House prices saw no real monthly change in May, but the annual rate of growth fell to -1%, the first time prices have fallen year-on-year since 2023. The average property costs £286,532.
Rightmove House Price Index
Rightmove’s house-price index differs from both the Nationwide and Halifax indices in that it is based on asking prices – i.e, the price that sellers list their properties at. It is one of the very first stages of the home buying process.
One obvious advantage of the approach of using ask prices to calculate house prices is that buyers can spot price trends early on. But asking prices can drastically differ from the prices at which houses are eventually sold.
“The main issue with the Rightmove index is its immediate volatility and mirroring of market sentiment rather than solid data. For example, if the housing market is bullish, the index will rise as sellers try to wrestle every penny out of their sales,” says London estate agent Petty Son & Prestwich.
There is also, of course, no guarantee that a listed house will sell. There is every chance the seller may withdraw the property and sell it at a later date.
Latest Figures: Average asking prices fell £82 in June to £372,812, marking the first monthly drop in 2023.
ONS/Land Registry House Price Index
The UK House Price Index (HPI) is calculated by the Office for National Statistics and uses house sale data from HM Land Registry, Land and Property Services Northern Ireland, and Registers of Scotland.
The index is published monthly, (although the Northern Ireland figures are published quarterly).
The ONS index is not mix-adjusted. Instead, it is a simple average of the sold prices in the month. The argument is that there are so many transactions that the differences in the type of property sold end up averaging out.
Latest figures: The average property in the UK rose 4.1% in the 12 months to March 2023, adding £11,000 to a typical home.
Latest figures: Average UK house prices increased 4.1% in the 12 month to March, down 5.8% in February 2023. The average house price in March was £285.
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