Britain’s two main mortgage lenders have been calling house prices in opposing directions since the start of the year, leaving economists to wonder whether the real estate market is going up or down.
(Bloomberg) — Britain’s two main mortgage lenders have been calling house prices in opposing directions since the start of the year, leaving economists to wonder whether the real estate market is going up or down.
Nationwide Building Society says prices are tumbling at their quickest pace since the global financial crisis more than a decade ago. But its rival, Halifax is rosier, suggesting prices have risen early this year, reversing part of a drop that started last year.
The answer to the riddle is one of size. Capital Economics says buyers are shifting their purchases toward cheaper properties, and that trend helps explain the different readings. The findings are important because economists look at data from the lenders and a handful of other surveys to get a handle on where the property market is headed well before official data is released.
Land Registry figures tracking all purchases put the average cost of a home at £288,000 in February, down just £5,000 or 1.7% from a peak in November. Other indicators are flashing red, prompting some forecasters to warn that property prices are likely to tumble 10% or more this year.
Usually, the reports from Nationwide and Halifax track closely to each other — and foreshadow the official Land Registry figures. But because the two lenders have different methods to compile their figures and use their own loan books, there sometimes are divergences.
At the moment, Nationwide says prices are now 4.6% below their peak in 2022. Halifax’s House Price Index indicates the decline is less than half that level. The conflicting data have made it difficult to assess just how grim the environment is for sellers.
Andrew Wishart, senior property economist at Capital Economics, thinks the discrepancy could be explained by a shift by buyers toward smaller homes — and says Nationwide’s take is probably closer to the truth.
“The increase in the Halifax HPI over the past three months comes despite a drop in the average size of mortgage approved,” he wrote in a note to clients. “For the HPI to rise when mortgages have shrunk suggests a big rise in deposit size or a shift in transactions towards smaller homes.”
Neither Halifax nor Nationwide disputed Wishart’s theory, though spokespeople for both lenders pointed out there were various differences in their methodologies which may influence the results.
Just 43,500 mortgages were approved in February, according to the Bank of England, below the previous six-month average of 53,716.
Read more: UK Property Surveyors See Sales Rise for First Time in Year (1)
Nationwide’s reading seems more realistic, Wishart said, as estate agents were reporting that buyers are having to compromise on space as tighter lending conditions force them to borrow less.
But why is this only evident in Halifax’s data? While the lender owned by Lloyds Banking Group adjusts sale prices for floor area, Nationwide doesn’t. This means that if the prices of smaller homes are outperforming as buyers look to make their money go further, Halifax’s HPI would be more likely to rise.
Halifax’s HPI also dropped more steeply last October, as mortgage costs shot up in the aftermath of then-Chancellor of the Exchequer Kwasi Kwarteng’s fiscal statement. Wishart said that suggested Halifax may have a more cautious approach to valuing homes when prices are uncertain.
He said the divergence highlighted “the challenge of producing house price statistics when mortgage approvals are low and stretched affordability has necessitated a shift in demand toward cheaper homes.”
But as Halifax’s results had left it at odds with the results of a survey from the Royal Institution of Chartered Surveyors, which showed new buyer inquiries remaining at a depressed level, “we suspect that the Nationwide figures are closer to reality,” Wishart said.
Read more:
- UK Property Surveyors See Sales Rise for First Time in Year (1)
- Build Homes in Factories to Beat Labor Shortage, UK Group Says
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