Uses actual transaction data for these sales, including new build and cash purchases, available at the point of reporting*

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1 LCPAca Residential Index Methodology Background to LCPAca Residential Index LCPAca Residential Index is produced in partnership between London Central Portfolio Ltd and independent analysts Acadata. It uses data supplied by Acadata which is consolidated by London Central Portfolio. The LCPAca Residential Index: Uses the actual price at which properties in England & Wales are transacted, including prices for properties bought with cash, based upon the factual HM Land Registry (LR) Price Paid data* as opposed to mortgage-based prices, asking prices or prices based upon samples Uses actual transaction data for these sales, including new build and cash purchases, available at the point of reporting* Is updated every month so all new transactions and price data is captured in each of our LCPAca Residential Index releases Uses 3-month rolling data, each month, to smooth out any volatility due to small sample sizes and to ensure that a sufficiently large sample of completions has been recorded to provide accurate data Provides the arithmetic average of prices paid for houses unlike the geometric average prices used in the ONS UK HPI. *See Data Limitations (page 2) for exclusions within HM Land Registry s Price Paid Data LCPAca Residential Index Methodology 1. LCPAca Residential Index includes cash purchase prices and when fully updated LCPAca Residential Index is based upon the complete, factual house price data* for England & Wales, as opposed to a sample. 2. Most indices employ data available to the provider as result of its business; index methodologies are designed to exploit the advantages and overcome the disadvantages of each particular dataset; a series based upon asking or offered prices is not the same as a final price series such as the LCPAca Residential Index and the ONS UK HPI. These can be prepared only when the prices at which properties have been transacted have been recorded by the Land Registry; valuation series can be prepared whenever the data (e.g. asking or mortgage offer prices) are available to the provider; publicity accrues to those indices which are released first; indices published at or before month end are likely to employ data for the current and prior months.

2 3. Price information provided by LR-based ONS UK HPI, like its mortgage-based predecessor, is published c.6 weeks after the month in question, enabling ONS to use a feed from LR of the c.65% of transactions for the month recorded by the 15th working day after the month end. The geometric mean prices offered by these first monthly releases of the ONS UK HPI may be best compared with the arithmetic mean prices within each first update of the LCPAca Residential Index for the month using (see para 4) c.80% of the month s transactions. The ONS UK HPI applies a hedonic regression model that utilises the various sources of data on property price (for example the Price Paid dataset) and attributes to produce up-to-date estimates of the change in house prices each period. 4. LCPAca Residential Index provides prices at national level, together with regional results for Greater London and borough level results for Prime Central London (PCL), defined as the Royal Borough of Kensington and Chelsea and the City of Westminster, back to With only some 70,000 monthly transactions now occurring compared with at least 100,000 in past markets, reduced data volumes are a problem for every HPI. This problem is heightened in the regional data. In Greater London, an average of only some 7,500 transactions now occur monthly. At London borough level, c.70,000 national monthly transactions, spread over 10 regions and 108 counties and 33 London boroughs, provide an average of only c.496 house prices monthly within each sub-district In order to address this and ensure that LCPAcadata provides a robust dataset, it records data for each month on a 3-month prior rolling basis, one month after the end of the period in question. On this basis, LR provides about 90% of the transactions for the first month, 80% of transactions for the second month and 75% of transactions for the third month. This represents an average sample of 80% of all transactions for the month reported, which is then projected up to 100%. This data will continue to be updated retrospectively until 100% of all transactions are actually recorded. However, based on Acadata s experience of predictive modelling, the data produced one month after the month in question is highly accurate given that it is provided on a 3-month rolling basis. 5. Trends within the new build market are calculated in a similar fashion to the whole of the market, described in points 1 4. However, due to a delay in registration of completions within this sector by LR, there is a further 6-months delay to ensure accuracy of reporting. 6. LCPAca Residential Index is prepared from Land Registry Price Paid data* using a methodology designed to provide a true measure of house price inflation Data limitations 1. LCPAca Residential Index is unable to identify different prices according to e.g. numbers of bedrooms; the lender hedonic indices and the ONS UK HPI do so. LR data exclude commercial and thus auction sales, and do not reflect repossession prices on the grounds that such prices do not

3 reflect those between a willing buyer and a willing seller; some feel that auction prices represent true market prices; others believe that the repossession prices do not. 2. *LCPAca Residential Index uses HM Land Registry Price Paid Data which is subject to the following exclusions: sales that have not been lodged with HM Land Registry sales that were not for market value transfers, conveyances, assignments or leases at a premium with nominal rent, which are: Right to buy sales at a discount subject to an existing mortgage to effect the sale of a share in a property, for example, a transfer between parties on divorce by way of a gift under a compulsory purchase order under a court order to Trustees appointed under Deed of appointment Vesting Deeds Transmissions or Assents of more than one property HM Land Registry Price Paid Data includes information on all residential property sales in England and Wales that are sold for full market value and are lodged with HM Land Registry for registration. LCPAca Residential Index Deciles Methodology 1. The LCPAca Residential Index Deciles currently examine PCL and Greater London only, creating a dataset of all transactions from the Land Registry Price Paid Data Set*, using Standard Price Paid Data (SPPD) transactions. 2. Due to the small sample within each decile, transactions above an agreed maximum price, currently 35 million, are removed to limit the open-ended nature of the 9th decile which can create unrepresentative trend results 3. Calculation of Deciles: a. Calculation of Deciles - Transactions are arranged in ascending order by sale price. The value of the first Decile (the 10% Decile) is the sale price of the first transaction for which the total number of transactions (including that transaction), is equal to or greater than 10% of the total number of transactions. The value of the second Decile (the 20% Decile) is the sale price of the first transaction

4 for which the total number of transactions (including that transaction), is equal to or greater than 20% of the total number of transactions. The remaining Deciles are calculated in similar fashion. b. Calculation of Average Prices within Deciles, by example - The second 10% sector of the market is composed of all those sales of greater value than the first decile, and of not greater value than the second decile. If there were 1,000 sales in total during that month there would be 100 sales in each 10% sector. The average price given for any 10% sector is the arithmetic mean value of the prices of the 100 sales in that sector. 4. In order to assess trends within price brackets, an average of averages is calculated using the Decile data, produced as stated. For the LCPAca Residential Index, this has been divided into the top 30% of sales by volume the premium sector and the bottom 70% of sales by value the mainstream sector. 5. To ensure a robust sample size, trends and averages are only reported on a quarterly basis. Acadata Ltd is an independent, research-based consultancy practice, focused upon the housing market. Dr Stephen Satchell, Economics Fellow, Trinity College, Cambridge has provided the oversight for our work over some 23 years. Our link with top flight academic input was the foundation stone for our business and our continuing investment in research remains the fundamental attribute of our practice. Our associated company MIAC Acadametrics Limited is an independent asset valuation service provider, specialising in behavioural modelling, stress testing and collateral valuation for the financial services industry. With MIAC Acadametrics now handling all risk work, Acadata is able to concentrate on house price indices and data and how these can best be provided for our clients. Dr Peter Williams is our Chairman and is also Director, Cambridge Centre for Housing and Planning Research and was until 2018 Executive Director of the Intermediary Mortgage Lenders' Association. He was for ten years Deputy Director General of the Council of Mortgage Lenders. As past Professor of Housing Management at the University of Wales, Peter is a strong advocate for research, and brings this enthusiasm, insight and his own academic background to Acadata. He is a senior industry figure, well known in government, academia and in the lending industry, with very wide experience across the whole housing sector. He served on the Board of The Housing Corporation from 1995 to 2002 Dr Stephen Satchell is Economics Fellow at Trinity College Cambridge, an Honorary Visiting Professor at Birkbeck College, University of London and is an Adjunct Professor at UTS, Sydney. He was The Reader in Financial Econometrics at the University of Cambridge until 2011 and is an Honorary Member of the Institute of Actuaries. Steve maintains his interest in house price indices and will

5 continue to assist as academic consultant when Acadata is advising on the preparation of indices for overseas countries

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