Which house-price index is the best?
Britain is obsessed with house prices, and we have at least four house-price indices to choose from to measure the rate of increase in the value of our properties. But how do they differ, and which is the best?
UK house price growth slowed a little in April with the latest figures from Nationwide showing a rise in house prices of 12.1% in the year to April, down from 14.3% the month before. But growth still remained in double digits and the average property price rose to £267,620.
Commenting on the data, Robert Gardner Nationwide's chief economist, said: “Annual house price growth slowed modestly to 12.1% in April, down from 14.3% in March – nevertheless, this is the 11th time in the past 12 months that the annual growth rate has been in double digits. Prices rose by 0.3% month-on-month, after taking account of seasonal effects – the ninth successive monthly increase, though this is the smallest monthly gain since September last year."
He added that housing market remained strong as mortgage approval rates remained high, meanwhile a low stock of homes contributed to higher prices.
The Nationwide house price index is not the only one we use to track average house price rises. Our house-price obsessed nation produces at least four main indices – Nationwide, Rightmove, Halifax and the Office for National Statistics..
So how do they differ and what does each one measure?
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 rose 0.3% in April with annual growth of 12.1%. The average price stands at £267,620.
Halifax House Price Index data going back to 1983 and, like the Nationwide index, is based on the bank’s valuation at the mortgage approval stage.
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 rose 1.1% in April and 10.8% over the last 12 months. The average house price stands at £286,079.
Rightmove’s house-price index differs from both the Nationwide and Halifax indices in that it is based on asking prices – ie, 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: asking prices rose 1.6% in April and 9.9% compared to a year ago. The average asking price stands at £360,101.
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: UK house prices rose by 0.5% in February to an average price of £276,755 compared to January this year while UK house prices rose by 10.9% in the year to February 2022.