Introduction to UK Property Prices Indexes

There are several key indexes that are mentioned in the media that track movements in UK house prices. This is a brief summary of the more common ones.

Halifax Property House Price Index

Halifax(now part of LloydsTSB) provide data for house prices based on mortgages that they have approved. However only sales that are deemed to be at a fair market value are included. Certain types of sales at below market prices – sale to tenants, council houses, etc are excluded.

Overtime there may be a change in the type of houses being sold – for example smaller flats may be sold more frequently than houses due to demographic changes. If Halifax took a simple average of house prices and measured movements in these they might show prices falling, although the price of an individual houses and flats being sold might rise.

In order to avoid this they seek to collect data on the characteristics of a property and adjust for changes in the mix of houses sold. Data is collection on are price, location, property type, number of rooms, size, age of property, etc.

Prices are broken down into a formula based on these characteristics. The statistical techniques used measure how much impact each of these changes has on the prices. This is then used to create a typical house, so that changes in the mixture of properties sold do not affect the index.

Finally there is a seasonal adjustment which is applied. This is because prices are typically higher in summer and lower in winter.

Nationwide House Price Index

Nationwide uses a very similar methodology to Halifax, but the underlying data is based on their mortgage lending. They have slightly different characteristics for the typical house characteristics.

They collect slightly different data on the properties of house, although the most important factors - size, location and type(detached, semi-detached, terraced, flat) are common to both indexes. Historically Nationwide are biased towards the South of England and Halifax to the North, however the adjustment to correct the price for a typical house should remove this bias. The two indexes move quite closely due to the fact the indexes are calculated in a similar way.

Land Registry

The Land Registry records all property sales in the UK. The land registry does not collect as much detailed information on the type of property as Nationwide or Rightmove. Their index is based on like-for-like house sales (i.e. if a house sold in 2007 and again in 2012 the difference in the value of the sale is the house price movement. The movement of all house prices is then aggregated to create an index, and the actual average house is based on the average house price in 2000. As with Nationwide and Halifax houses not sold at full market value are excluded.

Rightmove

Rightmove is the leading UK property selling website. The numbers it uses are simply the average if asking prices, unlike the other indexes it does not track when a transaction occurs. I am not sure that this index has much value. The plus side it is probably a leading indicator as changes in asking prices might flow through into transactions.

Zoopla

There are various property websites that apply their own methods to value houses; I think Zoopla is most famous. I suspect these are using proprietary models based on Land Registry data. Zoopla then seems to collect additional information that it's members can supply, such as number of bedrooms, any improvement spend, etc.

It is often derided as inaccurate, probably because Land Registry data does not track go back far enough to give a complete data set of like for like sales for every house and it is reliant on the information people provide on their houses characteristics.