[2024] UKUT 00301 (LC)

In order to adjust comparable sales to their equivalent at the market conditions at the valuation date, both experts applied a form of indexation, to account for changes in value over time. They could not agree which index was most appropriate.

Mr Nesbit used the Land Registry’s House Price Index for terraced houses in the City of Westminster between January 2013 and December 2022. He said that the index showed a high point for the market in April 2017 – an average price of £1,735,935 from 254 transactions.

Mr Alderton preferred to use the Savills’ Prime London Residential Statistical Supplement Index, pointing out that both JSRE Partners and Gerald Eve also used it. Mr Nesbit had more confidence in the Land Registry data as ‘the ultimate authoritative source’, being unconvinced that the Savills data is any more granular and being concerned as to the sample size of the data.

Both indices are perfectly respectable; the question is which one is more appropriate in this valuation. Mr Alderton’s criticism of the Land Registry Index is that it uses data across the Westminster Borough, taking in a diverse housing stock.

The specific Savills index which Mr Alderton used was that for houses in Central London (which in addition to Belgravia, comprises Bayswater, Chelsea, Earls Court, Holland Park, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, Pimlico, South Kensington and Westminster). This index shows a high-water mark in June 2014 with the market cooling (apart from a slight rally in June 2015) by the valuation date and continuing to do so until June 2020.

So we have two indices which show peaks in the market at different points in the property cycle – the Westminster Land Registry at April 2017, and the Savills Prime index some three years before. Which is more appropriate in this case? Some assistance can be gained from the market commentaries.

Mr Alderton said that changes to SDLT rates and a 3% surcharge for second homes all fed into the decline from the peak in 2014, although areas such as Belgravia weathered the storm somewhat better than the general market. He referred to Knight Frank’s Belgravia 2017 market review, which indicated that ‘pragmatic sellers were reflecting on their asking prices and…setting levels which reflect the true value as opposed to historic hope’.

According to Savills in April 2017,

In my judgment the Savills Central London House index provides a more reliable guide to changes in houses in the same general price bracket as the appeal property, as evidenced by the market commentary above. I am satisfied that the general Westminster market, encompassing a wide range of property types across the borough, was at a different point in the property cycle at the valuation date. This is also evidenced by the average price shown by that index at the valuation date of £1.7m, compared with the parameters in this appeal which are either side of £10m. Accordingly I have adopted the Savills index in analysing the comparable evidence.

Mr Alderton produced slightly differing versions of the Savills index in his first and second reports, possibly owing to the date they were written (the index is updated from time to time). The calculations in his first report were based on an older version, whereas the version used in his second report showed the same indices as in the version produced by Mr Nesbit. The changes are relatively small, for example for September 2014, Mr Alderton’s first version showed an index figure of 245.6, but in his second the figure was 245.8. Of the other five changes, the most relevant was that for March 2017 - the month before the valuation date – where his first report showed 216.5, and his second, 216.3. That skews the way in which he interpolated for intermediate months, including for the valuation date.

The later Savills index showed March 2017 at 216.3, and June 2017 at 213.5. The point in the month at which the figure is taken is not clear, and it would be tempting to adopt the March figure as a proxy for the valuation date of 1 April. However, from the evidence before me it seems that the most appropriate way of interpolating is to assume a straight line between the quarter dates. That would produce March 2017: 216.3, April 215.4, May 214.4 and June 213.5. Accordingly, the index at the valuation date to which the comparables should be adjusted is 215.4, rather than the 216.3 which Mr Alderton used.

It follows from the above that the starting point for the valuation of the appeal property can be based upon the transactions on seven properties, which took place before, or in the months immediately after, the valuation date. They are to be devalued on a gross internal area basis. Their sale prices are to be adjusted for changes in the market by reference to the Savills Central London House Index, and such adjustment is to be made before any other adjustments, which I deal with later.