The Financial Group
We simplify all those essential financial decisions
THE EDUCATION SECTION   Every month we look at a particular financial topic in a little more detail. This month it is house price surveys. ____________________________ Prices go up and down and there is not always consistency between surveys. Every   other   day   seems   to   bring   a   fresh   house   price   survey,   but   they   often   appear   to   move   in   different   directions.   The surveys   take   data   from   different   times   in   the   house   buying   process   and   also   have   different   parameters.   So   how   do house price surveys work and which ones should you trust? Land Registry The   Land   Registry,   which   records   all   completed   property   sales   in   England   and   Wales,   has   been   recording   the price of all property sales since April 2000, although the data now goes back to January 1995. The survey features the end of the buying process when a transaction is registered. The   Land   Registry   is   using   something   called   ‘Repeat   Sales   Regression’   to   measure   the   change   in   prices   over time.   This   means   it   only   measures   the   change   in   the   price   of   properties   that   have   been   sold   before,   to   ensure   a proper comparison. Most   sales   are   included,   except   for   commercial   properties   and   a   small   number   of   residential   sales,   such   as those of council houses and council flats sold at a discount. Repossessions and property transfers following a divorce are excluded to avoid skewing the sample. The Land Registry produces a monthly survey, and also provides a quarterly survey to the BBC News website. The   proceeds   of   all   the   transactions   are   totted   up,   and   then   divided   by   the   total   number   of   sales   to   reach   an average sale price. Because   it   takes   virtually   all   residential   property   sales   into   account,   the   Land   Registry's   figures   can   provide   a unique insight into not only national but local prices. In fact, the Registry can provide an accurate picture of prices down to postcode level. A similar survey is produced in Scotland by the Registers of Scotland. Government price survey The   government   has   its   own   monthly   house   price   index,   issued   by   the   Office   for   National   Statistics   (ONS),   who only recently took over from the Department for Communities and Local Government (DCLG), It covers the whole of the UK and is based on data supplied by the Council of Mortgage Lenders. This   covers   a   large   sample   of   completed   sales   which   have   gone   through   with   a   mortgage,   which   means   that cash sales are not included. The   DCLG   says   that   in   the   first   half   of   2010   there   were   an   average   of   42,000   loans   per   month   to   house   buyers, and the sample amounted to about 24,000 sales each month, involving 32 lenders. Thus the DCLG survey has been covering about 60% of UK sales involving a mortgage. Unlike   the   Nationwide   and   Halifax   surveys   which   are   weighted   according   to   transactions,   the   government's survey depends much more on the total amount of money spent. Relying   on   expenditure   in   this   way   will   mean   that   London   and   the   South   East,   where   house   prices   are   highest, will have a greater influence on the government's index. It takes figures from when a transaction is completed. Nationwide & Halifax Perhaps   the   best   known   snapshots   of   the   property   market   are   provided   by   two   of   the   UK's   biggest   mortgage lenders - the Halifax, now part of Lloyds Banking Group, and the Nationwide. Both surveys cover the entire UK, but are based on a sample of each lender's own loans each month. The   prices   measured   are   those   agreed   at   the   point   when   the   mortgage   is   approved,   not   at   the   later   point   when the sale is completed. The Nationwide and Halifax surveys use identical statistical methods. However,   because   they   use   different   samples   the   figures   sometimes   diverge,   in   terms   of   both   the   monthly   price changes and annual trends. Like   the   DCLG   survey,   they   are   based   only   on   property   sales   financed   by   mortgage   lending,   ignoring   sales which are transacted on a cash basis. Royal Institution of Chartered Surveyors (Rics) Put   simply,   this   survey   reflects   confidence   in   the   property   market   rather   than   what   is   actually   happening   to house prices. About   250   estate   agents   in   the   UK,   who   are   members   of   Rics,   are   asked   if   they   feel   prices   in   their   own   areas have been rising or falling in the preceding three months. Although   this   appears   to   be   a   subjective   way   of   measuring   property   price   changes,   generally   speaking,   the   Rics survey is the first to show any sea change in the market. Respondents   are   also   quizzed   on   a   host   of   other   related   issues,   such   as   whether   the   number   of   buyers   and sellers are rising or falling. Hometrack & Rightmove Both   of   these   property   industry   businesses   also   produce   their   own   house   price   surveys.   Hometrack   was   first   in on the act in 1999. Data   is   collected   from   3,500   estate   agent   offices   from   all   2,200   postcode   districts   in   England   and   Wales.   The estate agents report whether asking prices are rising or falling. They are asked to report the "achievable selling price" for each of four standard property types in their area, Rightmove's   survey   operates   in   a   completely   different   way,   by   collating   asking   prices   for   houses   placed   on   its own website over the previous month. The   firm   says   its   website   now   displays   90%   of   all   homes   for   sale   in   the   UK   although   its   monthly   survey   covers just England and Wales. However, it obviously does not reflect the prices at which properties actually sell. If you have any comments or want to get in touch please do not hesitate to contact us.