The Nationwide house

What determines the value of your home?

Every homeowner wants to know what has happened to the value of their house since they bought it. We try to help people answer this question by showing national and regional housing trends in our average house price index. To do this we monitor a set of features that have the biggest impact on value. These features then help us calculate how the price for an average property is changing.

Why do we do this and what are these features?

When producing our indices we only want to measure a change in value caused by inflation. We don't want to measure an increase in value when the owner has invested money in the property to improve the state of repair, or used their DIY skills to produce cosmetic changes. One way of measuring house price inflation would be to compare the simple average prices paid over a period of time. Unfortunately, this is misleading as an increase in the numbers of flats sold in a month for example, could produce a fall in the average price (because flats tend to be cheaper), even though the price of every property sold might actually have increased. To get around this problem we use a statistical method to construct an 'average house'.

Using the vast majority of Nationwide’s sample of mortgage data, we calculate the price of our 'average house' from a set of features. The simplest way of imagining Nationwide’s average 'house' is to think of it as the average price of a group of '100 properties', each with a set of 10 representative features (property type, whether it is new, region, neighbourhood characteristics at local and parliamentary constituency level, internal floor size, number of bedrooms and bathrooms, type of garage, and central heating status). This is the set of ten features that has the greatest impact on value.

Decorative images: Housing Split Pie Chart

Figure 1: The split of the Nationwide house by property type

Figure 1 shows how our '100 properties' are split into seven types. The most common property type (accounting for just over 30%) is semi-detached, followed closely by terraced and then detached.

Figure 2: The split of the Nationwide house by region, weightings from DETR

Figure 2 shows how our '100 properties' are located across the country. The highest number of houses, 13%, are sold in our Outer Metropolitan area and the lowest number sold are in Northern Ireland.

To reflect the national trend of house sales we use the DETR (Department of Environment Transport and Regions) proportions instead of our own. We do this because we know that we typically have stronger lending in the south. By assuming our '100 properties' are located in the regions in figure 2 our regional bias is removed. All the other nine features have proportions that are based on our mortgage lending.

Bedrooms

1 2 3 4 5

7.4% 28.5% 48.4% 13.9% 1.8%

Table 1: The number of bedrooms in our '100 property' analogy

Of our '100 properties' 12.7% are new, i.e. built within the last year, nearly all (85.2%) have full central heating, and a relatively small number (7.6%) have more than one bathroom.

Type of Garage

Double Single None

4.9% 49.3% 45.8%

Table 2: The type of garage our '100 properties' have

In table 1 you can find the number of bedrooms in our '100 properties'. All properties with greater than 5 bedrooms are excluded from our sample as they are deemed to be exceptional, and would only make a very small proportion of the sample. Bedsits, or properties without a bedroom, account for less than 1% within the sample. In table 2 you can see that double garages are quite rare.

Our house price method enables us to accurately track inflation in the housing market, rather than the trend in average prices of properties sold. In constructing the value of our statistical house we assess the impact of 10 key features, detailed above. We have identified these 10 features as the most important drivers of property value and we can single out the effects of particular features. For example, if you sold a house in the East Midlands in order to buy an identical house (in the same type of area) in London, we can tell you how much more would you have to pay. In our next special feature we will highlight what adds or detracts value from your home. This will be available in September.

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