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Simon Jackson: Presenting a realistic view of house values

First published in Mortgage Introducer


Predictions tend to mean very little

Tell most people you are involved in property, or the mortgage and housing markets, and you’re likely to get a number of stock questions thrown back at you.

For advisers I suspect it’s a variant of, ‘What’s the cheapest mortgage rate at the moment?’. For surveyors, it tends to be something along the lines of, ‘What will house prices do in the future?’, with ‘the future’ meaning anything from the next 12 months, to the next 12 years.

Predictions of this kind tend to mean very little, especially when you put them down in writing, and some bright spark makes a note to remind you of them in 12 months’ or 12 years’ time – most likely the former, rather than the latter.

Let’s look at the data

It’s for that reason I tend not to deal in them but prefer to look at the data that is perpetually presented and to see if we can draw any conclusions.

Plus, I think it’s important for us all to present a realistic view to consumers about house price levels, because there can be a tendency to look at headlines and extrapolate out an individual circumstantial view based on generalisations.

Here’s a case in point. At the tail-end of last year the Halifax House Price Index said that the average price of a UK property – no such property exists of course – in October was £253,243.

Back then it meant a monthly increase of 1.2%, a quarterly increase of 3.8%, and an annual increase of 7.6% compared to November 2019 – before the pandemic I might add.

Fast forward to now and the latest Halifax index shows an average price of £270,027, an increase of almost £17,000. The monthly increase was 0.9%, the quarterly increase was 2.3% and the annual change was 8.1%.

Let’s look at the Nationwide index – another prominent view on house prices but, it should be pointed out, like Halifax, is only based on their sales/activity.

In October 2020, it said the average house price was £227,826, some way below the Halifax’s’ average, which was a 0.8% monthly increase and a 5.8% annual increase on October 2019.

Again, bringing that forward to October 2021, the corresponding figure is £250,311, which is a monthly change of 0.7% and an almost double-digit annual increase of 9.9%.

Finally, let’s look at house price information which should show the whole picture – it’s the ONS data taken from the various land registries of the whole country.

The latest data is for September this year, which as you’ll know was the last month of the partial stamp duty in England, so we may have to take that into account, but it shows the average UK house price much closer to the Halifax figures at £270,000.

That figure is £28k higher than in September 2020 – a 11.8% annual increase. If you break the figures down into the constituent parts of the UK, England saw average prices rise by 11.5%, Wales by 15.4%, Scotland by 12.3% and Northern Ireland by 10.7%.

Significant price increases across the board

In anyone’s language, that is a significant increase in prices across the board – bear in mind that yearly double-digit increases are not a ‘normal’ part of the housing landscape in this country.

So, what does this tell us? Well, perhaps the more pertinent question for a surveying business is what does it ‘tell’ others within the process – notably the consumer and the adviser?

Because the temptation here might be to look at those national figures on a hypothetical UK home, and suggest that over the last 12 months, every single property should have increased in value by at least 8.1% (Halifax), potentially 9.9% (Nationwide) and most probably 11.8% (ONS) – perhaps more depending on where you live in the country.

Now, the first point I’m obviously going to make, is that valuing property simply doesn’t work like that and if there is an expectation, for example, that the value is going to be an X% increase since it was bought, or the last time it was valued, based on those indices and statistics, then more likely than not, everyone expecting that is going to be disappointed.

We fully understand the interest in this data, particularly when it is based on every single transaction like the ONS one is, but ultimately the valuation will be what it is for that moment in time, based on any number of factors, rather than a straight look at what the data says and a calculation based on its increase over a set period of time, or indeed a decrease based on a set period of time.

The dangers of generalising data

In that way, it’s incumbent upon us to manage expectation all round. A 11.8% increase over the last 12 months in this data does not mean every single property is now to be valued at this level, and those that are not are somehow being downvalued because of it.

A simplistic view, attempting to use ‘average’ and ‘general’ data to value an individual property, I’m afraid does no-one any good, and just because a property across/down/up the road was valued at £Xk, does not mean your/your client’s one will get the same valuation.

My prediction therefore is that, the sooner we move away from this type of view of house prices and valuations, the better for everyone involved in the sector/process, and the less disappointment we will see when the true value is ascertained.

Simon Jackson is managing director at SDL Surveying

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