Are house prices rising or falling?

Working out the direction of house prices can be a complicated business in the most benign of times – let alone the current, turbulent climate. Is the average British home worth £211,000, as one reputable index would have it – or is it worth almost £307,000? This week, one mortgage lender recorded a jump in prices in the last month alone of 5.9pc – the highest ever recorded. While monthly readings tend to be volatile, the many indices appear to be at odds with one another.

So is the data reliable? Who produces it, how, and what are their vested interests? Below are six of the most commonly-quoted indices, an explanation of how they work – and an assessment of their reliability.

Halifax – latest average value: £236,800 (annual change: 2.8pc) This index has run since 1983 and claims to be the "most commonly quoted". But the most recent data suggest that house prices have increased by 5.9pc in the month of February alone, the largest single monthly increase ever recorded on the index. This is in stark contrast to figures from Nationwide. Halifax recorded an annual rate of growth of 2.8pc, compared to Nationwide's level of 0.4pc.

Halifax’s house price index is based on homes bought with mortgages, excluding council house sales, shared ownership and help-to-buy schemes, while Nationwide’s is based on owner-occupier house purchase transactions involving a mortgage. Buy-to-let and cash deals are not counted. Ben Thompson of Legal & General Mortgage Club, the broker service, said: "Nationwide and Halifax issue their reports based on their business. Between both of them they may only represent one third of the market and arguably have a degree of geographical bias, or certainly a different mix."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “We have little confidence in Halifax’s index as a reliable indicator of the housing market. Its extreme volatility – February’s gigantic increase follows a 3pc month-to-month decline in January – undermines its validity.”IS IT RELIABLE? As Hansen Lu of Capital Economics writes, "we wouldn’t put too much weight on the jump in house prices recorded by the Halifax index."

Nationwide – £211,304 (annual change: 0.4pc) Like Halifax’s index this uses information from Nationwide’s own mortgage lending, taking the data when it agrees to lend on properties. It then adjusts the data by season and location to create "representative" house prices. This is also what Halifax does, but Nationwide says its process is "more robust" than that of its rival lender. Nationwide also publishes one of the most long-running measures of housing affordability which compares house prices (from its own data) with owners' earnings (from Office for National Statistics data).

IS IT RELIABLE? Indices from both Nationwide and Halifax derive from only their mortgage operations, so are not comprehensive. The data also excludes all cash transactions. Rightmove – £300,715 (annual change: 0.2pc) This index is quite different from others in that it reflects sellers’ asking prices when properties are brought to market. This is the opposite end of the chain from Land Registry data, which shows sales prices actually achieved. Rightmove claims it covers the vast majority of all properties for sale.

IS IT RELIABLE? This index tends to be more volatile than others as it rises strongly during optimistic phases of the market, and falls back if vendors become too greedy. Over time it tracks the other indices. LSL / Acadata – £306,647 (annual change: 0.6pc)

Operated since 2003, and designed by economists, this index uses Land Registry data but also builds in data from other indices to give the index a predictive angle. However, it only applies to England and Wales.

The current month’s index reading is a "forecast of Land Registry outcomes using an index of indices model". As successive data is released by the Land Registry, this is fed in to create an "ultimate data" reading. IS IT RELIABLE? The methodology is opaque but over time the readings lie reliably in the middle of other indices’ measures. Land Registry/ONS – £230,776 (annual change: 2.5pc) Two Government-backed organisations, the Land Registry and the Office for National Statistics now produce a joint index, as opposed to separate ones as they have in the past. Introduced in 2016, the index includes all residential properties purchased for market value in the UK.

However, as sales only appear in the UK HPI once the purchases have been registered, there can be a delay before transactions feed into the index. As such, the organisation advises "caution" when using this index; there is usually a two-month gap between data and publication. IS IT RELIABLE? The Land Registry’s "price paid" data comes at the end of a property purchase – often many months after – and so this index confirms a trend rather than indicates a future direction. The quality of the data means it is regarded as highly authoritative, even if it lags.

Other housing statistics in the news An array of other data is also regularly reported relating to housing activity. The Council of Mortgage Lenders and the British Bankers’ Association report monthly on lending volumes and mortgage approvals. The Royal Institution of Chartered Surveyors gives monthly updates on where its member surveyors expect prices and levels of activity to be headed.

How relevant is all this information to homeowners and prospective buyers – and what importance should be attached to it? Nicholas Ayre, managing director of home buying agency Home Fusion, says: "Buyers are so bombarded with statistics that it can be hard to know what to believe. How big is the sample, what area does it cover and how out of date are the numbers?" He concluded: "Don’t take any of the indices too seriously. Many indicate a national average property price that could be very different from your experience in your particular area so it is wise to take them with a huge pinch of salt – useful as a general guide but not something to base a decision to buy or sell property on. "My advice would be to pick an index without a commercial angle, such as the ONS index, because while the Government will be interested in house prices rising, it is not trying to flog anything off the back of it."

Author: Sam Meadows & Isabelle Fraser