Press Article
METRO - 10 March, 2011
House Price Indices
By Jo Eccles
The Royal Institute of Chartered Surveyors (RICS) published its influential, monthly property market survey last week, which highlighted strong variations in house prices across the UK. The report, which is based upon a survey of RICS members, denoted that house prices in London appear to be increasing, but nationally, they are falling.
I think that reports such as the RICS housing market survey and other house price indices are a good idea in principle as they give buyers an idea of how the market is looking, but they must be taken with a pinch of salt.
A number of different organisations produce house price indices – government bodies, mortgage providers, and most recently, property websites – but they can often give very distorted views of the market because of the data used to compile them. For example, the RICS survey is based upon the sentiment of its members, whereas mortgage lenders base their data on the purchase price agreed at the time of the loan offer, and websites often use asking prices to substantiate their figures; the last two methods do not take further price negotiations in the run up to exchange into account. This can lead to discrepancies in the findings. Also, many indices exclude cash property purchases, where the buyer hasn’t required a mortgage, which can make the data unrepresentative – especially in areas such as Central London where there are a high number of cash buyers.
It is also very important to view the findings of indices in context; they are usually based on national data and so a headline announcing a sharp increase in prices may not necessarily apply to your area, and even if it does, prices are still dependent on a huge number of variables; such as the type of property, the street it is on and specific qualities of a particular home – a south facing garden for example. I have seen extreme local variations in house prices depending on what side of the road the property is on!
The government is currently looking into creating a more regulated index, following a report by national statistician, Jill Matheson, late last year. The report called for a more representative data sample, based upon the Land Registry and the Department of Communities and Local Government indices. More details for the suggested new index are expected to be released in April; if it can be orchestrated, I believe that such an index will provide a more realistic view of the property market and I am interested to see whether or not it will actually come into fruition.