Two Pennies Worth

Coming soon: UK house prices, the opera!

Confused.com writer Sam Dunn explains why we shouldn’t pay too much attention to house-price surveys. 

Thrill to bloody events and thunderous singing as our beleaguered heroine – the plucky homeowner – battles for survival against furious and frenzied price fluctuations.

Hold your heart in your mouth as her hopes, dreams and bricks ‘n’ mortar are haplessly tossed about by economic squalls, evil interest-rate movements and mercurial market sentiment.

Tickets aren’t (yet) available for my fictitious piece of am dram but don't worry: there’s more than enough hammy acting, shrill hyperventilation and bulging eye-ball over-reaction in reality.

Here the centre stage belongs to the glut of national house price indices and the incessant, breathless media reports that accompany them without context or clarity.

The problem is embedded in a three-way tangle: the oversupply of house price indices (now in double-digits), their usual monthly frequency (causing statistical pile-ups) and the small but vital differences between them (rarely explained).

For instance, while Halifax and Nationwide monitor the size of monthly mortgage approvals, Rightmove scrutinises asking prices and the Land Registry is a final record of actual sale prices.

Each has a glaring weakness: mortgage approvals regularly change in size or collapse; asking prices might be at the sharp end of public opinion but yo-yo wildly; and factually accurate completion data tends to emerge up to six weeks after a sale.

There’s also a broad diversity of geography to account for: Halifax traditionally has a larger presence in the north of the country, Nationwide the south. The confusion created often appears comic – last year, Nationwide unveiled a 0.9 per cent fall in August while Halifax suggested prices were marching upwards by 0.2 per cent. 

Yet neither was wrong, just offering a subtly different snapshot of the short-term at a given moment in time.

But the intrinsic monthly value of each – to all manner of movers, first-time buyers and renters thinking of buying – is minimal. It won’t tell you where house prices are likely to go in the future, nor offer any kind of barometer against which to make a sound house-buying decision.

Here, then, is danger of a real skewering: short-term reporting of the price of an asset whose real value is established over the longer term as an investment where, for the vast majority, it’s a home to live and raise a family.

This lack of substance is then compounded by the dismaying frequency with which the statistics are slavered over by shrieking media; barely a day or two will pass without some update of any small movement in property values.

I recently listened to a  radio report gravely imparting news of a 0.1 per cent fall in house prices before moving on to other news of public-sector cutbacks, welfare policy shake-ups and similar less important pieces of information.

The real drama is that a great deal of Britons look to homeownership as a bellwether of wealth, status, aspiration and power in the shape of equity and – importantly for many – a legacy for children.

Which means that house prices sell. No matter how trifling the move, or that a rival index reported a grossly different version of events just days ago, stories about property will bring in the listeners, viewers, readers and advertisers.

Unfortunately, a healthy interest in housing – especially when it matters, during economic turmoil, with rises in repossession, negative equity and defaults – has turned into a meaningless obsession with the minutiae of monthly updates.

It’s not often I can turn to Michael Winner for help but, to paraphrase one of his commercials: “Calm down, dear, it’s only a house-price index.” 

Inflation is a bruising bully make no mistake

 
Sam Dunn, freelance money writer for Confused.com and national newspapers, shares his views on inflation and how you don’t have to let it get the better of you.

When the price of everyday goods rises faster than income or savings interest can grow, it can have a drastic effect on your personal finances. In particular, it can wallop the retired, who rely on a fixed monthly pension and - since they’re no longer working - can’t try to lick it by earning more.

Many struggling families and workers will also have groaned at last week’s revelation that the Consumer Price Index (CPI) cost of living edged up from 3.7 per cent to 4 per cent in January - the highest annual inflation rate in more than two years and double the target in the Bank of England crosshairs.

It’s easy to see why: petrol is now at £1.27 a litre (a record high); car insurance is up by 29 per cent over the past 12 months; transport costs have risen by 7.7 per cent; food and non-alcoholic drink have gone up 6.3 per cent (soft drinks bubbling up a startling 12.1 per cent); and bills for dining out or hotel visits are up 4.5 per cent.This general picture of a national average is invaluable to all manner of policymakers, investors, savers and speculators – yet its relevance to great chunks of the population is harder to pin down.

We all live very different lives, buying goods and paying for services that suit our own lifestyles, income and tastes – and for many the national average may as well be from a different country.

The statisticians calculate inflation using a “basket of goods” that regularly changes content as it tries to reflect our national spending habits. Its considerable size helps it cover plenty of all-encompassing factors – food, travel, fuel bills, alcohol etc – as well as a cornucopia of other, less commonly bought, items to create a decent overall picture.

From the price of a small pet hamster (classified under “recreational items”) to the cost of getting your busted home PC repaired (audio-visual), charge for home removals (transport) and night-club admission (cultural services), the detail is mind-boggling.

To move with the times, contemporary items recently introduced for price comparison include Blu-ray movie discs, bottles of mineral water, powdered baby formula and cereal bars. Of course, not everything is afforded the same space in the basket: an appropriate weighting is calculated and then fed into the inflation machine to spit out the monthly update. However, the upshot is that inflation is a hideously complex beast – and the 4 per cent CPI figure is, for millions, either a basic guide at best or, at worst, hopelessly off course.

There will be plenty who cycle instead of use a car, rarely use public transport, hardly ever eat out and would shudder at the idea of chugging fizzy drinks – their own inflation rate is likely to be considerably lower than that of fellow Britons who do the opposite.

Similarly, older Britons and the retired will be hit by 1.4 per cent fuel price inflation but less likely to be clobbered by the 3.5 per cent in mobile phone costs; ditto students noticing 6.7 per cent alcohol and ciggy (I generalise horribly) inflation won’t largely feel the huge 29 per cent motor insurance and 3 per cent new car inflation.

For many, the solution is to use the national average as a prompt to instead take control – where you can – of your own inflation.

First, try a personal inflation calculator by filling in your spending details at either the official ONS site and try the Confused.com cost of living calculator with tips on keeping your spend down. Be prepared for a shock; you could find it may be much worse than the national 4 per cent.

More importantly, though, you can then put one over on CPI by ensuring you bag the cheapest prices on as much of your daily spend as possible. Keep a lid on your own inflation by outsmarting retailers and services at every turn, whether for example it’s “downshifting” a supermarket shop; using price comparison sites and haggling for car/home/travel insurance; switching to online gas/electricity tariffs; or picking a bundled TV/landline/broadband deal instead of separates.

When you're in charge of keeping a lid on price rises, inflation doesn't have to be such a thug.