House prices have fallen for the past four months, according to the FT house price index for June, but contrary to recent data from mortgage lenders the survey showed valuations remained 1.8 per cent higher than in June 2007.
In the past two weeks, Nationwide building society and Halifax, the mortgage arm of HBOS, the bank, have said house prices fell by 6.3 and 6.1 per cent respectively over the same period.
The difficulty in reconciling lenders’ figures, based on their own mortgage approvals, with either the FT or Land Registry index – based on completed transactions – left economists who produce the surveys speculating on reasons for the gap and worrying that spurious figures might influence the market. Peter Williams, chairman of Acadametrics, the consultancy that produces the FT index, said: “There can be no doubt that the [media] coverage the lenders’ measures attract adds to negativity, which in turn undermines consumer confidence and ultimately sales transactions.”
Although each of the measures uses varying methods and sources, analysts said three well-known differences should have left the lenders’ figures showing higher rather than lower house price inflation. The FT index, for example, includes house purchases by buyers who do not need mortgages. With vendors desperate to sell, cash buyers are even more valuable than usual and should be able to drive a harder bargain. This should have driven down the FT and Land Registry indices.
Second, the FT index covers only England and Wales, not the whole UK. Given Scotland’s property market is holding up relatively well this should also make the lenders’ figures higher relative to the Land Registry’s statistics, as Martin Ellis of Halifax acknowledged.
Third, the lenders’ data includes mortgage approvals that do not make it to completion. But purchasers of over-priced property are probably more likely to pull out of a deal than those who have picked up a bargain, so again the mix of mortgage approvals should have higher average prices than the mix of completed transactions.
If these three known differences between the survey methods fail to explain the difference, three other explanations start to shed some light on the issue. Mortgage approvals in May were only a third of the level in May 2007, so the sample sizes of the Nationwide and Halifax indices will be well below usual. This should not push the lenders’ surveys in any particular direction but would make them more susceptible than usual to other biases. One possibility mooted by Acadametrics and Calnea Analytics, the consultancy that produces the Land Registry’s index, is that the differences are caused by changes in lending practices during the credit crisis. If lenders have stopped providing mortgages to anything other than properties that appear bargains – many have, for example, refused lending to expensive city-centre new-build flats – this could have an impact on their annual comparisons.
Another possible explanation is that completions are taking longer from the point of mortgage approval than usual. That would imply that completion-based indices, such as the FT’s, are showing what happened to agreed prices in the market some time ago and things have subsequently deteriorated seriously. This explanation appealed to Fionnuala Earley of the Nationwide.
Whatever the cause of the difference, Selwyn Lim, managing director of Calnea Analytics, the analyst, insisted all price indices have one common flaw at the moment. None of them capture “how dreadfully the housing market is performing as a result of transaction volumes falling through the floor”.
For most employees in the property industry or for home-owners wanting to sell, the collapse in transaction is a bigger worry than working out whether you can quite sell a property for as much as you could last year.