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Harris on Mortgages

It is little wonder that there is so much confusion surrounding the future of the housing market when there are at least half a dozen indices all claiming to offer the definitive picture as to what happened to house prices the previous month.

With so many commentators, it is no surprise that the results vary – quite wildly in some cases. This is not so much of a problem when the difference in opinion is 0.1 per cent or so in the same direction but it becomes thoroughly confusing for homeowners when one index says the market has gone down while another is firmly convinced that prices have risen.

Take house prices in December, for example. Nationwide reported that prices fell by 0.2 per cent while Hometrack said there was a drop of 0.8 per cent. But then Halifax throws a rather big spanner in the works, saying that prices rose by 1.1 per cent. Halifax even managed to contradict its own figures, concluding that there were “continuing signs of a genuine slowdown in the housing market”. Well, not according to its own statistics.

Why does this difference in opinion matter so much? The problem is that in a nation obsessed with the value of their homes, these indices are given more credence than they often deserve. Newspaper editors seize on the headline rates and splash them across their front pages. So one day a headline claims one thing and another day, another headline claims something else.

When a homeowner is considering selling, they want an idea of current market trends so that they know when they should take action but what if one index says one thing and another, well, another? Which do you trust? If you postpone your move because you believe house prices are going to crash – because this is what one index is suggesting – it had better be the most accurate one or you could end up making an expensive mistake.

There is a genuine lack of clarity because it is not understood just how these indices are calculated. It is only when you know what is behind the statistics that you realise why there is such a big differential – the providers of these indices use quite different criteria. Take the Halifax house price index It has got a lot of clout because of HBOS’ position in the market so it tends to be taken even more seriously than some of the others. But while it may be the longest running index, it has not always been the most comprehensive.

Up until December 2002, properties valued at over 1m were excluded because this was dismissed as a “tiny market segment” that did not justify inclusion. Yet the prime market is quite a different animal to the rest of the housing market so excluding it will have a big impact on the final conclusion on prices. Its difference is particularly evident in the current climate as business is picking up in the 1m and 2m-plus market while the rest of the housing market is experiencing a gradual slowdown.

The only way to get the clarity that is so desperately needed is to scrap all the various indices and replace them with one authoritative independent index. This official index could be drawn from the Land Registry figures and therefore should be the most accurate because it measures act-ual completions rather than mortgage approvals, as the Halifax does. All transactions are included, not just those purchases where a mortgage was used. But it needs to be more up to date – the two-month time lag is simply not good enough Given that stamp duty is often paid on completion, there surely could be a quicker turnaround.

Only then will homeowners and first-time buyers know the true state of the market and can base their decision to move or not on accurate, unbiased criteria.

Mark Harris is managing director of Savills Private Finance


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