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Posted on 08 September 2020

UK’s House Price Index, what is it and why does it matter.

What is the House Price index (HPI)? The UK House Price Index is the set of…

What is the House Price index (HPI)?

The UK House Price Index is the set of calculated values that describes changes or trends in the UK housing market. The index is broken down to a regional and national level so you can follow the trends in your area and compare it to those across the country.

The UK HPI is one of several different metrics used to gauge to condition of the housing market. For example, two of the largest mortgage providers Halifax and Nationwide use their own mortgage approvals data to generate comparable values to monitor the health of the market. Rightmove on the other hand use asking prices for their published values. In both instances you should expect these to differ from HPI when you come across them.

Advantages and disadvantages of HPI.

Firstly, the UK HPI is calculated using data from completed purchases (sold houses). This means the value is a true reflection of the actual state of house prices as it captures what people have actually paid up and down the country.

Secondly, the civil organisations that generate the HPI are independent of the market itself. This means the HPI could be considered a more reputable value with less exposure to market bias. These organisations are the Office of National Statistics, HM Land Registry, Land and Property Services in Northern Ireland, and Registers of Scotland.

The one main disadvantage is that UK HPI takes a couple of months to calculate and therefore lags the real-time market. This is where the alternative values from the likes of Rightmove help as they can be considered more of predictive indicators, signposting the likely direction of the housing market.

How does it affect you?

Whether buying or selling, the index values provide a good indicator of the market’s health and the price trends regionally and nationally. It can also be used to tell if the market is weighted towards buyers or sellers. There are several other economic factors that come into play but put simply, if the market is in a downward trend, buyers would benefit from falling prices or lower price expectations. If the trend is upwards, sellers would benefit from the increasing prices and higher expectations.

If you are buying a property, the regional HPI values can provide some indication as to the growth you can expect to see. When picking the duration of your mortgage it serves as another factor to help you decide how long you might wish to stay in the property.

If you are selling or indeed thinking of selling the index can help you identify how much growth the region has seen and approximate the growth of your property’s value.

In both cases the estate agent will be the best source of information on local variations in prices and trends.

When is it updated?

The usual cycle sees the indices released monthly, calculated from historical data two months prior. For example, the UK HPI values for February would be released two months later in April. Given the recent COVID crisis the HPI releases were suspended so the backlog is now being worked through and released as per the schedule defined on the gov.uk website.

Where can I find more information?

The sources for this article are listed below should you wish to explore the topic further. If you are looking for the latest on the UK HPI checkout the gov.uk web link containing the most recent information and scheduled release.

 

Sources:

UK Gov – about HPI

UK Gov – Comparing Indices