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Is national and regional property price info misleading?

Are media headlines based on ‘average data’ influencing our decisions to buy, sell, invest or re-mortgage? Our guest explains why she thinks that’s the case.

This is a guest post by Kate Faulkner. All views expressed are Kate’s own and not necessarily shared by Which?. 

I’ve been working with property price data for several decades, and I am concerned that, although we can all access individual property price data free of charge, media headlines based on ‘average data’ can still influence our decision to buy, sell, invest or re-mortgage a home.

So what’s the problem with national and regional property price data?

Headlines for July 2020 told us ‘house prices have fallen for the first time in eight years’, suggesting that the market was failing.

The ‘evidence’ behind this scenario was Nationwide’s reporting of an incredibly tiny 0.1% fall in house prices year-on-year, this data originating from the lockdown period. So not only was the fall really insignificant, it was also from a time when the moving market had pretty much shut down.

For most people considering buying, investing or selling a home, or re-mortgaging, headlines declaring that house prices are falling makes the decision far more nerve-wracking and stressful than if prices appear to be stable or rising.

Should we worry about national and regional averages?

I don’t think so. In contrast to that report, agents who kicked off the home-moving process are finding the market extremely buoyant; and respected analyst Hometrack said:

“UK house price inflation in the 12 months to June 2020 edged higher to +2.7%”

It also forecasts that “headline UK house price index will remain in the 2-3% annual growth range for the remainder of the year”.

It’s not unusual for different indices to report different price movements on a monthly basis, which is why I summarise and explain what’s really happening each month.

Why individual property price data is more important

In reality, my research of the last year tells me that for individual properties, prices have increased, decreased or stayed the same.

These variations may result in national or regional ‘averages’ being reported up or down, but this doesn’t matter. It depends solely on how many properties are for sale versus how many potential buyers can and want to purchase there and then.

I’ve studied property prices for many years, looking at national, regional, town and city data – useful when considering the market generally. But when advising individual buyers and sellers, I now focus on property prices street by street. In my opinion, all that should concern anyone is:

🏠 The value of their home now

🏠 The value of the property they’re buying now

🏠 The likely future value of their new home

As a practical illustration, the following two tables show the vast difference in property price averages and how different the year-on year-increases and decreases are, according to the government’s Land Registry data.

 

Source: Land Registry March 2020

For England, the average property price is reported as £248,271 in March 2020, a growth of 2.20% year on year. This compares with regional average variations between 1% falls to 4.7% increases and average prices of just £126,945 through to £485,794

And even with regional data, within each region there’s huge variation. Here’s a break-down of regional and city data for Yorkshire and Humber:

Source: Land Registry March 2020

However, the real differences can be seen when you look at different property types and individual properties on specific streets. 

For example, the Land Registry reports flat prices in York are down by 0.7% year-on-year, while semi-detached and terraced properties are up by 1.4%.

Not a huge difference, but even this can be misleading: when researching further, some flats could be very popular and thus rising in value, while others could be overtaking a 0.7% fall. And it’s the same for other property types.

In my experience, ‘averages’ at any level in property prices are now irrelevant for individuals moving, investing or re-mortgaging.

What matters is how the price of the property you own, are selling and/or buying is behaving.

The only way to discover this is to talk to local agents who can give you a true overview of the current market, and for you to check, free of charge, the history of individual property prices via price paid data

This was a guest post by Kate Faulkner. All views expressed were Kate’s own and not necessarily shared by Which?. 

Do you feel that media headlines concerning average prices affect your decisions around property? What research do you carry out in advance of entering the market?

Comments

Statistics might be of interest to those in the property industry but for those who simply want to buy and sell homes it might be better to look at what is on offer in areas of interest and at recent sale prices. Estate agents may have information on recent sale prices that have not appeared on Rightmove, Zoopla, etc.

I agree. There can be a long time lag between completion of a purchase and registration of the sale by the Land Registry. This means that the data issued by estate agents and appearing on property websites is unreliable and could be misleading.

I had always assumed that any good local estate agent would – if for no other reason than curiosity! – maintain a record or database of all asking prices and sale results for the properties within their catchment areas, but it seems this is not the case. They obviously have records for those sales that went through their books but pay little attention to sales by other agents. For other properties they rely on the listings on property-finding websites or on data released by the Land Registry.

Another problem is that apart from the final selling price, no information is given about the properties under comparison; they might be larger or smaller, older or newer, in good condition or bad, or priced for a quick sale, so market information can only be a rough guide at best.

Knowing the value of a property is a mystical art and depends heavily on who else or what other properties are in the market at the same time, which is why “asking price” has so often been changed to “guide price” [with a wide range], or as OIEO [offers in excess of], or OIRO [offers in the region off], and other crafty euphemisms.

Any offer that is more than 1% below the ‘asking price’ is now described as “cheeky” and any offer lower by 5% or more is repudiated. An offer on the base line of a ‘guide price’ range is routinely rejected and the agent says the seller won’t accept “less than £x” – so why put it on the website at a lower figure? Is that fair and honest trading?

I agree that information may not be reliable but having information available on the web has helped buyers and sellers.

I mentioned in an earlier Convo that a friend had an offer at the lower end of the guide price range rejected, and eventually had to pay more. It is an unhelpful term for buyers.

I managed to obtain a 5.5% reduction on the price of my present home in 2016 after a young man in the estate agent’s office advised me to ‘make a cheeky offer’. My neighbour managed to get a reduction of 12% off the rather excessive asking price.

A seller will quite understandably want to get the best price possible for their biggest asset. Some properties are fairly straightforward to value – many similar properties in the area that regularly change hands. Others more individual. In the end the price achieved is what a willing buyer will pay and if that is seen as insufficient by the seller they can withdraw the sale.

A guide price seems to be useful to indicate the price area believed appropriate. If there are more than one interested buyers then the price can be forced up. The ability of the buyer making the offer to complete reliably will also be a factor. It is a sort of auction situation. An initial offer may be rejected because the seller hopes, given a little time, a better offer might be achieved; they take the risk that may not happen and the potential buyer may not repeat the offer.

No one has the right to expect a seller to sell except on terms the seller is happy with.

I agree with both of you. The system is far from perfect but it is what we have and it more or less works. It is indeed useful to have sold prices listed on the web – so long as people understand the limitations. What I find useful on Rightmove is that the date of first listing is shown and any reductions. Even in a sellers’ market like many places right now, some properties will not sell quickly at the price first sought and it pays to take time to see how the market is settling. As soon as prices start to go up, a flush of properties comes onto the market which has a counterbalancing effect. So long as we don’t return to the bad days of gazumping and gazundering, the market will sort things out reasonably well; unrealistic expectations will find their rightful place.

A friend has been seeking a flat for her daughter and wants to buy one for her. One that was conveniently situated and apparently a good buy was advertised at a guide price of £170,000 to £190,000. I contend that is a ridiculously wide range. They went to look at it and were not impressed by its condition and various minor negative factors which collectively suggested a lower value so as a ‘sighting shot’ they offered £160,000. The agent asked if they would raise their offer which they did, to £168,000, but it was rejected. One month later it is still on the market at the original guide price range. Since they have now come to believe that the negatives outweigh the positives they are looking elsewhere. I just think estate agents could do more to stabilise the market through sound advice on pricing and by not stoking an alleged boom which can lead to disappointment on both sides.

Maybe the vendors are in no rush to sell and hope someone less discerning might pay within the range.

As far as I know, estate agents will advise their clients realistically as they want to achieve sales and the commission that generates. It is not in their interests to overprice, is it? The vendor can presumably insist on the asking price, rather like they can a reserve at auction.

The agent can refuse to handle the marketing of the property but presumably hope the vendor will eventually see sense.

I agree. It might be interesting to see a trend (but we have seen the danger of this when it is an apparently rapidly rising market and some people panic buy). If you have to move to a different part of the country regional differences are of some interest. However I think all that matters is a realistic valuation of your own property, searching for properties on sale in the area you would like and getting a valuation on what you choose. And, of course, the loan you can obtain.

For most people I think a house should be a medium to long term investment, but not as a way of making money. General trends in house prices mean that while yours may increase in value so will another house you may want to move to. I’d perhaps look more at the potential to improve a properly you intend to buy, by extending but not overdeveloping. I’d suggest that is more likely to improve the value if you then move or get you better accommodation beyond what you otherwise might afford.

I was surprised, some while ago, to be shaken from the view that building an extension would add more value to the house than the cost of doing the work. I am fairly certain that the current chaos at home and the eventual new kitchen, bathroom and added bedroom – knocking walls down etc will be a lot more than the additional market value of the house. I am doing this for my own benefit – not intending to sell the property – but work of this kind isn’t cheap! Things like asbestos add a few more noughts to the bill. I weighed up the positive values of living where I do to the positive values of moving. To save money I could down size or move to a cheaper area, but, as has already been mentioned, increases in my house price are mirrored by increases elsewhere.
I do believe that the buying and selling system should be tidied up. Asking prices should be fixed and such offers automatically accepted, subject to assurances, chains and the usual legal procedures. The seller must decide whether to accept the terms of the deal and can naturally favour a buyer who is in a better position to purchase at the agreed price. They can also reduce the price of course or accept a lower offer. But, once the offer has been accepted, there should be no temptation to change minds if a better offer is made. Only if the buyer fails to keep his part of the bargain should the sale be voided. There should be some form of legal penalty for that situation. Wishy washy asking prices are unfair and lead to bad faith and poor business dealing.
The government should have stamped out ground leases by now, these are nothing short of extortion.

100% agree with your buying and selling suggestions Vynor. When there is so much at stake, it is time we had some certainty when moving home.

I also agree with ground leases. Some years ago now, but our buyers solicitors insisted on what was probably a worthless document for the garage that was at the rear of a property we sold. All it did was make money for the two solicitors in hunting down who actually owned the land then making us cough up for the privilege.

I agree that accepting an offer should be binding. But that should apply to both vendor and buyer – the latter should complete. But often there are obstacles in the way that might prevent this, not least the mortgage and valuation.

If an offer has not been accepted and two or more potential buyers offer higher prices I would, as a vendor, make the most of that. It might suggest the property was undervalued, at least in the sense that an article is only worth what someone is prepared to pay for it.

I agree about the cost of extensions. Building is expensive (although people with some skills can use them to contain the cost). An extension can be used to maximise the potential of a property before selling, or to provide extra space without the need to move house. That avoids selling and legal fees, stamp duty, moving expenses that can be set against the building cost.

I feel that if an offer is made at the asking price, or within the range of the ‘guide price’, and the person who has made the offer is ‘ready, willing and able to complete’ then there should be no prevarication on the part of the seller. The OIEO and OIRO tactics should be ruled out.

As with any private sale of any article, the vendor has the right to not accept an offer for whatever reason. For many people in my experience there are still processes to resolve when you make an offer on a property before you can buy it, such as a satisfactory survey, an acceptable valuation and a confirmed loan. This can take time and if someone makes a better offer ( including clearer ability to complete) in the meantime then many vendors will understandably consider that.

As I said earlier, if the person making the offer is ready willing and able to proceed – i.e. they have cash or a mortgage offer, don’t need a survey, and the purchase is not dependent on a sale – then the seller should be equally ready to accept the offer and sell. As others have mentioned, there is a need for greater certainty at every stage and between all the parties if the housing market is to work efficiently.

Putting a property up for sale at a given price or within a stated range should represent some sort of commitment and not be entered into lightly. It is because of such a lack of commitment that practices like gazumping and gazundering took place earlier this century. Notwithstanding the right not to proceed with a sale [and there could be very good and exceptional reasons why that would be the right course of action], it will be more satisfactory for everyone involved in the transaction if there is utmost good faith shown by all.

Dragging out the date for exchange of contracts so that people can keep their options open is another unsatisfactory aspect of the process and I would advocate bringing back the convention of the buyer putting down a stake as a holding deposit to be forfeit in the event of pulling out for no good reason; a similar arrangement should apply to the seller so there would be some form of sanction against capricious conduct.

It would be interesting to know (for me, anyway) just what proportion of intending buyers already have the cash, or an unconditional mortgage and will just need a very quick survey to back up an offer at the asking price.

I guess most people’s problem is they have a property to sell, or a sale to complete, before they are in a position to be sure they can buy. One way is to sell and rent while the search is made but this also has its downside.

30-40% are cash buyers according to the government website: https://www.gov.uk/government/news/uk-house-price-index-new-data-reveals-number-of-cash-buyers

I presume that this includes properties bought to let or for resale. A friend used to buy properties that were structurally sound but needed new bathrooms, kitchen and sometimes changes in room sizes – tiny kitchens are not popular these days.

https://www.ukfinance.org.uk/system/files/The-changing-shape-of-the-UK-mortgage-market-FINAL-ONLINE-Jan-2020.pdf
According to this report about 70% of house sales require a mortgage, 6% are buy to let. Cash buyers account for 29%, a mix of cash investors and home owners with no mortgage. Most of those with no mortgage will still usually have to find a buyer before the funds to buy their next house become available.

It’s easier to buy without needing a mortgage if you don’t live in an expensive area. I bought my present home before selling the previous one.

People downsizing or moving to a lower priced area can often buy their next property without a mortgage, and if you don’t need a mortgage then the survey is sometimes unnecessary so the purchase [and therefore the sale] can proceed faster. I think ability to buy without hold-ups can be as useful as being able to afford the price in some situations.

Older people often move to downsize their garden, or should be doing so if they are finding it difficult to manage. I agree about minimising the delay, though in my case I was retired and the time taken was unimportant.

A member of my family is in the middle of purchasing a house in Scotland and that seems to be going very well.

Phil says:
8 August 2020

Rather than a mean average price a median price, the price that the majority of properties in the area sell for, might be more useful but would people understand it?