House price index at odds with lenders

A new government house price index sowed further confusion over the state of the market yesterday, by showing sharply lower house price inflation this year than the big mortgage lenders have reported.

A new government house price index sowed further confusion over the state of the market yesterday, by showing sharply lower house price inflation this year than the big mortgage lenders have reported.

The index, published by the Office of the Deputy Prime Minister, showed that house prices increased by 14.6 per cent in the year to July - well below figures issued earlier this month by the Nationwide and Halifax, the UK's leading mortgage providers.

The government index said the rise in prices was "underpinned" by first-time buyers, further contradicting recent surveys from the mortgage lenders, who have warned of a dire shortage of new buyers entering the market. The average price paid by first-time buyers in July was £120,830, up from £114,699 in June. "The ODPM's inaugural house price has highlighted once again the uncertainty around the true state of the housing market," Alan Castle, head of economics at Lehman Brothers, said.

The new data, intended to ease concerns that the current array of indices confuse the market with conflicting messages, did corroborate one recent trend: the stark North-South divide in terms of house price inflation. Prices surged by 24.4 per cent in the North-East, against just 9.4 per cent in London. Most surveys show prices in the capital have been falling for months and the rest of the country tends to follow London's lead.

Critics of the new survey, which is based on completions rather than mortgage approvals, pointed to the historic nature of the figures and the fact that they are not seasonally adjusted. "The main drawback with the ODPM data is its lack of timeliness," Mr Castle said, although he added the survey's wider coverage was a "useful cross check on unofficial sources".

Government officials said it could take a further six or seven years before the index becomes a comprehensive UK indicator, although that is its ultimate goal. It currently omits Land Registry data, which is even more historic, cash purchases, which account for 25 per cent of transactions, and official figures from Scotland and Northern Ireland.

Meanwhile, other surveys pointed to signs of strengthening in the housing market with more buyers returning to the fray. Buy-to-let investors rose in number over the summer after a hiatus, the Royal Institution of Chartered Surveyors said. In August, 13 per cent of all properties sold were to investors, compared with just 8 per cent in October 2000. And with the number of properties on the market falling for the third month in a row, RICS said competition for properties had risen along with market confidence.

This was reflected in research from the estate agents FPDSavills, which found that the number of new homes being built across the UK was flat at around 176,000 completions. "The inability of supply to meet demand means a continued upward pressure on residential values," it said.

The RICS survey also showed house prices rose in August for the first time since January. It said 8 per cent more surveyors reported a rise in prices than a fall for the three months to August compared with 2 per cent more reporting a fall in July.

There was better news, too, for landlords, in a survey published by Paragon Mortgages, one of the industry's biggest lenders, showing that rental incomes had hit a record high. It said national average rental incomes leapt 3.3 per cent in August to £9,354, bringing the increase so far this year to more than 6.4 per cent. The report also said that the profit margin on buy-to-let homes had held up after falling for two months.