Halifax House Price Index

Summary

The UK's largest mortgage provider Halifax, which is part of the HBOS plc group, produces its monthly Halifax House Price Index. This includes data on the average house price, regional average house prices, month on month differences, quarterly changes and comparisons with the same month the previous year.

It is based on a monthly sample of its mortgage transactions, and typically covers around 15,000 house purchases each month, around a quarter of all mortgages.

Because its figures are from its own customers it also has details of whether buyers are first time buyers. This more detailed buyer information along with regional breakdowns is released quarterly. The mortgage transactions included in the index are those that were approved rather than completed during each month.

Data

The Halifax uses its own database of approximately 300,000 mortgage approvals per annum (ca. 25 per cent of all mortgages) as a basis for its monthly house price reports. Because it uses approved loans rather than completed mortgages, the Halifax can obtain data earlier than the Land Registry. The Halifax index excludes property sales that are not for private occupation and those that are likely to have been sold at prices which may not represent 'free' or 'normal' market prices, e.g council house sales and sales to sitting tenants.

Method

The Halifax index uses the hedonic regression model to estimate the price of the 'typical' house, not the 'average' house price. The typical house has the mean characteristics of the properties on which Halifax approved mortgages in 1983. The price data for the various house characteristics are estimated by hedonic regression separately for every period; thus, relative prices of the characteristics are free to vary. The Halifax data is seasonally adjusted on a monthly basis and weighted according to volume. Further information about the Halifax methodology is available via the Halifax website.

Disadvantages

• Its focus on mortgage approvals rather than completed deals means it can never be wholly accurate as some deals may fall through just before completion
• It only covers a sector of the market as it is restricted to its own customers
• Because it is based on mortgages it ignores any cash purchases of property
• Using the characteristics of a typical house in 1983 as a starting base for the index means the figures will always be skewed. Much has changed in the property market since then, with crashes and massive inflation of prices. Also at the time Halifax had a far stronger base of customers in the North of England.

Advantages

• Because it covers mortgage approvals it is more up to date than figures based only on completed deals, which can take a number of months to collate

Verdict

The Halifax index concerns the price of a typically transacted house rather than the price of a typical house in the property stock. It is useful because of its timeliness, but the possibility of sample errors and its Northern bias should be kept in mind.