Buying a house House price index: what you need to know
What is a house price index? And why does the 'average' house price vary so widely depending on which index you look at? From the Land Registry and Halifax house price indices to getting a true picture of what's happening in your area, we explain all.
If you're buying a house, you'll want to have a good sense of what's happening in the property market. House price indices provide one way of exploring this - but how useful are they? Read on to understand how a house price index could help, and when it might not be that useful.
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What is a house price index?
House price indices aim to track average house prices over time to give an overall sense of the housing market. This can be useful if you're trying to get a general sense of whether prices are increasing or decreasing, particularly if you look at a house price index based solely on the area or city you're interested in.
However, different indices can produce varying figures. Consider these headlines from a single day in March 2016: Sky News reported 'Average house prices push past record £300,000', while the Scotsman said: 'UK average house price hits record high of £292,000'.
To add to the confusion, there are at least 10 organisations producing house price indices in the UK.
The official UK House Price Index
The Office for National Statistics has attempted to address this confusion by creating a single official UK house price index.
The monthly index, which launched in June 2016, shows regional property price variations and sales volumes, as well as price variations by property type and type of buyer.
It covers the whole of the UK, using data supplied by the Land Registry, Register of Scotland, Land and Property Services, Northern Ireland and the Valuation Office Agency.
- If you live in England or Wales, you can find out what's been happening to house prices in your local area using our interactive house price map
Why do different indices give different average house prices?
One of the reasons for differing house price index results is that they all define the 'average' house in a different way. For example, Halifax uses information such as number of bedrooms to standardise its figures - but the calculations are based on the mix of property types being sold when the index started in 1983. Meanwhile, Nationwide reassesses its definition of an 'average house' every two years.
To add to the confusion, the Land Registry and Rightmove house price indices look at only England and Wales, while the others cover the whole UK. And the Rightmove house price index is based on the asking prices listed on its website, while other indices are based on final selling prices.
The chart below shows how the differing approaches can produce widely varying results.
House price trends
Over the past few years, national increases have been largely driven by the south of England and London, while Wales, Scotland and Northern Ireland have seen much slower price growth and prices in some areas have fallen.
But it's not always useful to generalise by region, particularly if you're trying to use house price activity to inform a decision on whether now is the right time to buy or sell. Trends can differ from street to street, let alone from county to county.
To find out what's happening in your postcode area, check out our interactive property prices map, where you can compare what's happened in the past year with activity across the three years previously.
You can also find out how much homes similar to yours have been selling for on the Land Registry website.
- Buying a house - your step-by-step guide
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