How to Predict UK House Prices
Buying or selling a house is likely to be one of the biggest transactions you will ever make so it is important to get the best price possible and a crucial part of this is timing. So how do you work out whether house prices are going to continue falling or whether they are on the upturn? You could turn to any of the frequent newspaper articles written on the subject, but the problem with this approach is that journalists like to take particular angles in order to create eye catching headlines. If journalists are to believed, the property market is either about to soar or it’s on the brink of an abyss. The fact is that the picture is always more complicated than that, and is riddled with contradictory signals. This article goes through all the important sources of data that the journalists consult so you can better get an idea of what’s going on in the UK housing market.
House price indices
Land registry
The land registry is the official government body that collects statistics of all house sales in England and Wales. Each month they publish how much house prices have risen or fallen and break this information down into regions and local councils. They are also by property types: flats, detached houses etc. These figures are probably the most reliable because they are based on all property sales rather than a sample. The problem however is that by being so thorough, the figures take 6 to 8 weeks to come out, by which time they are a bit out of date.
Nationwide
The Nationwide Building Society produce an index based on mortgages they have approved. Their information is more up to date because it comes out just a few days after the month they are reporting on. However, although their data is a reliable indicator, you should remember not everyone buys a house with a mortgage.
Halifax
Halifax Building society, now part of Lloyds Group, is the country’s biggest mortgage lender. The Halifax somehow manage to publish their index a few days before the month is up. They apply a statistical technique of averaging data over three months to smooth out any blip in a particular month. The Halifax tend to have more customers in the north of the country, which is one reason why their data can differ from that of the Nationwide.
Another couple of sources worth keeping in touch with are those produced by HomeTrack.co.uk and the Financial Times, who commission their own house prices index. Although all the above indices will give different numbers due to the different ways they are calculated, they are rarely far out, and taken overall will provide an excellent guide as to the direction prices are moving.
Other important indices
RightMove.co.uk
One of the most important market summaries is that produced by rightmove.co.uk. They have 90% of all UK properties featured on their site and on the third monday of each month they produce a house prices report based on on the information they gather on house prices. They don’t have access to what properties actually sell for but they are able to give an analysis of asking price trends. There write-up is thorough and a must read for anyone tracking the market.
Royal Institute of Chartered Surveyors (RICS)
Surveyors are the people that value a property when when a sale is made. This means they uniquly have their finger on the pulse of the housing market. The RICS monthly report is highly rated in the media. The report gives in depth analysis on the number of sales and also the number of people showing interest in properties. When a change in the market occurs RICS are often the first to notice. Because they work closely with estate agents there insights are close to what’s happening on the ground. However bear in mind that they have a vested interest in a buoyant market and tend to talk down any negativity.
Regional variations
You should bear in mind that UK wide figures may not tell the whole story about your region. They give overall trends but there can be a lot of variation around the country. Here are some facts about each of the regions:
- Northern England - with a declining industrial base this area has a slower economy and lower house prices. In a boom it is the last area to go up and the first to come down in a slump.
- South East - a much more resilient economy combined with a shortage of land means house prices are generally buoyant.
- South West - a large number of second homes means that house prices are higher than the local economy would suggest. Prices can tumble when things get tough as it is usually the second home that goes first.
- London - a larger proportion of active foreign buyers means that London can be insulated from the worst of a domestic recession. A lower exchange rate will attract even more overseas buyers, which also can increase prices.
- Wales - has a high proportion of public sector workers, so the local economy - and hence house prices - is susceptible to the level of government spending.
- Scotland - house prices have traditionally been nearly half that of the average English home. Being so remote from London they are less affected by the booms and busts.
Mortgage approvals
Another measure of the health of the market often quoted by journalists is the number of mortgage approvals. When there is an increase in the number of people applying for and being approved for mortgages it is a sign that there will be an increase in the number of buyers over the next few months. Looking at mortgages is good because it is an indicator of what buying patterns will be in the near future. Economists say that for UK house prices to remain stable it requires a level of around 100,000 mortgage approvals per month. Higher than this and prices are likely to rise. Lower and prices fall.
The main source of this information is from the Council of Mortgage Lenders. They publish monthly figures giving the total number of mortgages approved by all regulated mortgage lenders. The Bank of England also keep track of this data and publish their own figures on lending.
Unemployment statistics
The next big influence on house prices is the rate of unemployment. As people lose their jobs they are unable to pay high mortgage costs thus forcing house prices down. As unemployment spreads even people in secure jobs start to feel cautious about taking on a big financial commitment and may stay out of the market or downsize. Keep track of unemployment be looking at the government online statistics.
Interest rates
The affordability of a home is dependent on the mortgage repayments, which in turn is dependent on the interest rate charged. Fixed rate mortgages are still relatively rare in the UK so mortgages are affected by movements in the Bank of England base rate. Typically an average mortgage will be a few per cent above this, although when the base rate dropped to near zero at the end of 2008 mortgage rates did not follow closely.
