2013 house price rises: home owners made £1,131 a month
01-04-2014
In London the increase was nearly £4,000 a month. Nationwide's figures underline the extent of property wealth creation last year - and point to an overvalued market
The average ratio of house prices to earnings has remained above five all year and rose to 5.40 in December Photo: ALAMY
By Andrew Oxlade
House prices rose by 8.4pc in 2013, figures from Nationwide showed today, adding £1,131 a month to the value of the average property.
The report from Britain's largest building society prompted more claims that the country's property market is in a bubble.
In terms of actual prices, the average value rose from £162,245 to £175,826, an increase of £13,851 over the year. That equates to gains of £1,131 a month or £37 a day.
In London, the improvements were far greater. The average price increased from £300,361 to £345,186, an increase of £44,825, or £3,735 a month.
The recovery in prices had been largely centred on the South-East but it appears to be spreading out. Homes in Yorkshire & Humberside, for example, increased in value by 7.5pc, from £131,046 to £140,864 – a rise of £9,638.
Proportionally, this nearly matched the 7.6pc rise for the South-East, where prices rose from £198,009 to £213,007, or by £14,998.
The North was the weakest region, where prices crept ahead by only 1.9pc, rising from £114,264 to £116,417.
Is property overvalued?
One key measure of house prices is how they compare with wages.
The average ratio of house prices to earnings has remained above five all year and rose to 5.40 in December, its highest level since July 2010. The long-term average house price to earnings ratio (calculated over more than 40 years) is 4.1. At the peak, in October 2007, it was at 6.39. In comparison, it reached only 4.91 in 1989 during the late Eighties boom and bust.
But Nationwide also pointed to the fact that low interest rates were keeping repayments affordable.
Robert Gardner, Nationwide's chief economist, said: “Affordability is being supported by the ultra-low level of interest rates. A typical mortgage payment for a first-time buyer is currently equal to around 29pc of take-home pay, close to the long-term average.
"However, the risk is that if demand continues to run ahead of supply in the quarters ahead, affordability may become stretched. House price growth has been outstripping average earnings growth since the middle of the year.”
How does Nationwide's study compare with other indices?
Nationwide and Halifax run ahead of the more official indices published by the Land Registry and the Office for National Statistics (more on this below).
Halifax is expected to publish its latest index next week. The last one, for November, showed a 7.7pc annual rise to £174,910.
The ONS will not publish full-year figures for 2013 until mid-February. Its most recent statistics, for October, showed an annual rise of 5.5pc to £247,000. Prices in London were 12pc higher.
The Land Registry is marginally ahead of the ONS. It showed a 3.2pc rise to £165,411.
How do the surveys work?
The surveys by the lenders tend to be very well watched. The Halifax index has run since 1983 and claims to be the “most commonly quoted”. The data comes from Halifax’s agreed mortgage advances and is then adjusted to take into account seasonal shifts and other factors. They represent only a third of the market and have a degree of geographical bias owing to their heritage.
Like Halifax’s index, Nationwide also uses information from its own mortgage lending – it takes the data when it agrees to lend on certain properties. It then adjusts the data by season and location to create “representative” house prices. This is also what Halifax does, but Nationwide says its process is “more robust".
It should be remembered that more than 40pc of homes are owned outright, according the Bank of England data. Without mortgages, these homes are not captured in any lender-based data.
The average price given by these indices also differs wildly from that published by the Office for National Statistics. It produces one of the most complex indices, which “together with the Land Registry HPI is one of the main indices used by central and local Government”, it claims.
But why does it come up with such different numbers? The short answer is that ONS statisticians obtain mortgage data from lenders and then “mix-adjust” it to reflect different property types and locations. It is also weighted to reflect volumes of transactions, in a process which is updated annually. There is also a seasonal adjustment.
The ONS data also lags the lenders'. The most recent figures were published on December 17, covering the market up to October. Nationwide's figures are for the full year.