Expert mortgage views & facts

House prices. It’s a big topic. Not just because houses are a major investment (and mortgages are a major debt), but because property values affect just about everyone, whether they’re buying a house, selling one, renting one – or just living in one.

Who’s saying what?

The next time you feel frustrated by the endless debate about the future of house prices, remember there’s no actual agreement on where house prices stand right now (or yesterday or last year). It’s hardly surprising there’s so much talk about what’ll happen next.

So what are people saying now? Let’s look at what they said about June 2008 (the last month for which complete figures were available at time of writing).

	Monthly change	Annual change	Average June price	Peak price	Peak date
Nationwide	-0.9%	-6.3%	£172,415	£186,044	October 2007
Halifax	-2.0%	-6.1%	£180,344	£199,600	August 2007
Land Registry	-1.0%	+0.1%	£180,781	£185,656	January 2008
Department for Communities and Local Government	-0.7%	+0.6%	£215,029	£221,758	January 2008

Who’s right?

The differences aren’t exactly trivial.

• Was the average house worth around £172,000 in June – or £215,000?
• Had prices fallen more than £19,000 below their peak value – or less than £5,000?
• Did prices peak in August 2007 – or January 2008?
• Were house prices actually slightly higher this June than last June – or 6% lower?

The way you see the housing market depends on whose figures you think are closest to reality. Unfortunately, there’s no simple way of saying who’s ‘right’. Even comparing their findings is difficult, since different organisations collect different information (and use quite a few technical terms):

• Nationwide, for example, tracks a representative house price, as it says the simple average price is ‘too easily influenced by a change in the mix (i.e. proportion of different property types, locations etc) of houses’.

• The Land Registry, on the other hand, uses the ‘Repeat Sales Regression method’, which ‘ensures an ‘apples to apples’ comparison between properties’.

They also measure prices at different points in the selling process:

‘The Halifax and the Nationwide base their index on prices at the point of mortgage approvals, while the DCLG index is based on prices at mortgage completion. The Land Registry index is based on prices at the time of transfer of ownership.’

Economic Indicators, a Research Paper from the House of Commons Library

Who cares?

So who cares about house prices – and about the way we measure them? One way or another, just about everyone stands to gain or lose something from changes in the housing market. What’s more, prices depend heavily on confidence, so people are often accused of deliberately ‘talking up’ (or down) the market for their own reasons.

Buyers. After more than a decade of rapid rises, all kinds of would-be first-time buyers had just about given up hope of ever getting their foot on the housing ladder, so today’s falling prices seem like great news for them, as long as they can get a mortgage. And professional property tycoons can make a fortune from property slumps – the ones who aren’t forced to sell can just wait until prices recover (and keep their eyes open for low-cost bargains in the meantime).

Sellers. Falling prices are bad news for homeowners thinking about selling up and moving abroad / into rented accommodation / into a smaller house. For people moving up the housing ladder, though, falling prices can actually be a good thing: if they sell their ‘£150,000’ house for 10% less than they expected, they’ll lose £15,000 – but if they buy a ‘£250,000’ house for 10% less than they expected, they’ll save £25,000!

Homeowners. Most homeowners own at least some equity (the part of the house’s value that they don’t owe money on), which they may be able to ‘withdraw’ (turn into cash). Some people withdraw equity to finance major projects, from home improvements to holidays, while others do it to consolidate their high-interest unsecured debts. A secured loan or remortgage can come with a low interest rate since there’s less risk for the lender – it’s secured against equity, so if the borrower doesn’t keep up with the repayments, the lender could (although it’s unlikely) force them to sell up to repay the debt.

Renters. It’s the economics of supply and demand – basically, the more people who want what you’re selling, the more you can charge (see ‘Would-be buyers’ below).

Non-Buyers. Lots of would-be homeowners are staying in rented accommodation, whether it’s because:

1. they can’t get a mortgage, or
2. they think prices will drop further, so they’re worried about losing money if they buy now, or
3. they think prices will drop further, so they hope they’ll save money by waiting a while longer, or
4. all three.

Everyone else. Even living ‘at home’ with their parents can’t insulate someone from the housing market’s knock-on effects on the rest of the economy. When house prices are high and still rising, owners feel rich and this can encourage them to spend more, even if they’re not actually accessing the money in their home through remortgages / secured loans. And when house prices are dropping, the opposite happens…

Further reading:

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