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November 2014 Newsletter – Understanding Indices

November 24th, 2014 | No Comments | Posted in Monthly Newsletters

Understanding Indices

House Price Indices, or HPIs, have been used to calculate the average house price in the UK since 1973. Although these indices are the main source of generating news regarding the housing market, you may have noticed that statistics often differ greatly one month to the next. This is because house prices are in fact calculated by different parties, all containing varying exclusions and use different methodologies for their calculations. Worst of all, as these parties release their statistics at different times, it creates a carousel of contradictory news that is confusing for everyone, especially you the customer.
The main governmental statistical body is the Office for National Statistics (ONS). They produce a monthly report called the House Price Index (HPI), which shows figures for average UK house prices. The Halifax index on the other hand, which has been running since 1983, claims to be the most commonly quoted source of house prices. It is the one source that definitely creates several articles, but is it the most reliable?
Well, for example some HPIs such as Halifax only include statistics from their own lending. Hometrack, another HPI generator, bases its statistics on surveys, only displaying a limited sentiment instead of actual prices. Surely these won’t give a comprehensive and accurate overall picture of the market every time? Probably not, but that does not stop it generating a headline.
Another important part of this puzzle, is how the source reads the information. Between all the indices, there is a real variation in the source of information itself. Some use completions, some use the price agreed at loan approval, some the asking price and others the actual price eventually paid. This is a wide variety that understandably creates some differing statistics.
It is definitely some food for thought, proving that taking information at face value in the media is not always the best policy. Generally, these indices should be used by you the consumer as a guide, not to be taken too seriously.
The only thing you can guarantee is that asking an expert is easier, sensible and beneficial. They will know the market better than anyone, so speak to your adviser for the best advice on your mortgage options. Now is an opportune time after all, as all around the UK the market is improving and house prices are increasing as we head towards the New Year.

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