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House prices have been in the news a lot lately, as the property market reacts to the coronavirus pandemic and the economic aftermath.
But there’s more to the story than pound signs and percentages. Let’s take a look behind the headlines to help you navigate house price hype as a first-time buyer.
Next time you see a news story about house prices, make sure you check which house price index the data comes from.
FYI: if you read the Multiply Minute, you’ll always see a source alongside the figures.
Mortgage providers like Halifax or Nationwide produce an index based on the mortgage deals they’ve approved.
They don’t always reflect the market as a whole, and can be skewed depending on what type of mortgages that lender specialises in.
For example, Nationwide does a lot of first-time buyer mortgages which means its data may be biased to the more affordable end of the property market.
Rightmove has an index based on average asking prices. Asking prices tell you about how sellers are feeling - if they’re feeling optimistic then asking prices are higher. But it doesn’t tell you the actual prices that are agreed with the buyers.
The official UK House Price Index (UK HPI) uses data from the Land Registry. Ir's the most reliable, as it uses real purchase price data from property sales. It’s published monthly, but there’s a lag of six weeks.
One downside is that this index may also include transactions that are not at market values, for example property being passed at discounts to family members.
Here's a quick summary of the four different indices we've mentioned.
Like everything else in life, house price data has been disrupted by coronavirus.
Accurately tracking shifts in house prices relies on having plenty of information available about recent house purchases. That’s not easy at the moment.
The property market all but shut down for several months, and the number of transactions is only just starting to pick up again.
With fewer property transactions, all house prices indices are less reliable than usual. The last UK HPI report was published on 20 May and has been suspended altogether since then.
That means there’s less certainty than usual, and all predictions should be read with an element of caution.
So you're reading the news and you understand the data. What do you do with the intel?
It’s useful to be armed with information about house price trends. A significant drop in house prices might mean that you can expand your search to new areas, for example, or even have a nosey at places with an extra bedroom.
When it comes to making an offer and negotiating with the seller, a knowledge of the market can help you avoid paying over the odds, and maybe even get a bit of a discount.
You should keep one eye on the market while you keep saving. A drop in house prices could mean that an opportunity comes up sooner than you expected.
Set up alerts from property websites such as Zoopla and Rightmove to keep tabs.
It’s best to ignore what the property market is doing and focus on your plan. Things might change fast, so try not to get distracted by current trends and fluctuations.
The best thing you can do is keep saving and following your financial plan to get mortgage-ready.
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