Forecasting the UK House Price Index: A Comparative Study of ETS and SARIMA Models

The increasing house prices in the UK are affected by factors such as the Pandemic, Brexit, inflation, and monetary policy, among other structural economic shifts. This societal phenomenon has led to a pressing housing affordability crisis due to a conflict between the residents' average income and mortgage affordability, which sequentially affects the decisions of UK residents and real estate investors. A widely recognized indicator of house prices is the HPI (House Price Index), which measures the change in prices of residential properties. This research aims to forecast the Housing Price Index in the UK by leveraging the ETS model and the ARIMA model. The first step in this process is to conduct a detailed analysis of the HPI dataset retrieved from the UK Office for National Statistics and HM Land Registry, spanning from 1968 to 2025. As a result, the forecast showcases that the SARIMA(1,1,3)(1,0,0) model with drift is the best for forecasting the UK HPI from 2010 to 2025. This study has provided an excellent statistical forecast model in order to gain a nuanced understanding of future house price index fluctuation within the United Kingdom and hoped that this can provide valuable insights for both local residents and financial institutions, as well as real estate agencies, with regard to risk assessment and investment planning against the structural economic shift.