By Graham Norwood
A Government shake-up of house price indices may make it easier for buyers and sellers to read the market and know what their house is worth.
Buyers often use indices to judge how much a home will cost them in a particular area and how much the price may change in the future. Sellers use them to judge whether their homes are worth more or less than when they bought them.
The problem is that the six highest profile indices often produce conflicting figures. For example one index released last week says a home costs an average of £232,241 while another, produced a few days earlier, puts it at just £167,425.
Two of the six indices are from the Government – the Land Registry and the Department of Communities and Local Government – plus two from lenders Halifax and Nationwide, and the others from data companies Hometrack and Rightmove.
Even the two Government indices vary. The new DCLG one says a typical home is £210,775 which is up 9.9 per cent over the past 12 months. The Land Registry index says a typical home costs £166,072 and is 8.4 per cent higher than a year ago.
There are several reasons for this bewildering picture.
Firstly, the indices are measured at different stages of the housing cycle. Some look at asking prices when the seller instructs an estate agent; others look at prices actually paid for homes by the purchasers, which may be 10 to 20 per cent lower.
Secondly, the indices have different sources. Hometrack’s data comes from estate agents, whereas Halifax’s statistics are based on the mortgages it gives to buyers.
Some indices include all homes whereas others exclude unusual properties.
Thirdly some indices apply to the UK while others apply to just England and Wales.
‘The general public put great store by indices but they often do more harm than good,’ says Melanie Bien, a director of broker Private Finance. ‘Panic can be generated by a single monthly fall in prices, even though another index may record a rise at the same time.’
There are at least 15 other more specialist house price indices covering niche sectors.
Top-end estate agents produce data about ‘prime’ London homes based on a tiny number of properties. Other firms simply add up the different indices and issue a rough ‘poll of polls’ – these gain widespread publicity but are regarded as very inaccurate because they ignore the differences in each individual index.
Many of these indices are then released by public relations spin doctors. The result? Buyers and sellers are confused.
‘Some big estate agencies produce figures and forecasts but these need to be read with a pinch of salt as they’re focused on what’s happening in their own front offices rather than the entire market,’ says Camilla Dell, a London buying agent.