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House prices continue to rise

Amanda Jarvis

March 8, 2006

The cost of owning and running a house rose by seven per cent in the period, more than three times the rate of CPI inflation.

The seven per cent increase was the second successive annual increase above the rate of inflation. Over the past three years, the total costs of housing have increased by 14 per cent, far outpacing the 4.6 per cent rise in inflation over the period.

Also revealed by the research is that council tax and fuel bills are set to outstrip mortgage payments in 2005/06 for the first time since Halifax began researching this area, making mortgage payments the second biggest outlay for a home.

Costs of owning in London are 28 per cent above the national average:
– The costs of owning and running a home vary widely across the country. At £8,133 per year, London housing costs are the highest. Costs in the capital are 63 per cent above the annual housing costs in the North East, the cheapest region at £4,990 per year. The capital’s costs are 28 per cent above the national average.

There is, however, significantly less variation once differences in incomes are taken into account. The East of England has the highest housing costs relative to household income, at 18.6 per cent of gross disposable income, whilst costs remain lowest in the North East at 16.0 per cent of gross disposable income.

Higher mortgage rates boost costs in 2004/05:
– Total annual housing costs increased by £418 from £5,948 in 2003/04 to £6,366 in 2004/05. Higher mortgage interest payments contributed the most to the increase in the cost of owning and running a house in 2004/05 – rising by 20 per cent to an average of £2,146. (The average mortgage rate in 2004/05 was 5.4 per cent compared with 4.4 per cent in 2003/04.)

Halifax estimates that higher fuel and council tax bills will more than offset lower mortgage costs in the current financial year, pushing up the costs of running a home in 2005/06.

Additionally, both council tax and utility bills are expected to rise by well above inflation in 2006. For example, British Gas increased gas and electricity tariffs by 22 per cent on 1 March 2006. Council tax bills in England are set to increase by 4.5 per cent in April, more than double the rate of inflation, according to a survey conducted by CIPFA. Council tax and utility bills are set to represent 35-36 per cent of total housing costs in 2006/07.

Other key findings:

– Annual housing costs, at £6,366, make up 23 per cent of total household spending by owner occupiers and are one-third more than household spending on the essential items of food & drink, clothing, education and healthcare.

– Average annual housing expenses for homeowners exceed £5,500 in nine regions of the UK. Housing costs are highest in London at £8,133. Only three regions have annual housing costs below £5,500 – Wales (£5,127) and Northern Ireland (£5,064) with the North East experiencing the lowest housing costs just below £5,000 at £4,990 a year.

– For the average UK homeowner, housing expenses take up 17.5 per cent of their income. Housing related expenditure relative to income is highest in the East, accounting for almost 18.6 per cent of gross household income closely followed by the South East 18.0 per cent. Costs are lowest in relation to income in the North East at 16.0 per cent of gross disposable income.

– At £2,146, mortgage interest costs account for 34 per cent of the annual costs of owning and running a household, the largest single expense. In London mortgage interest payments account for 39 per cent of total housing costs, the highest proportion of any region, while Northern Ireland has the lowest proportion representing 27 per cent of total housing costs.

– Both water supply and electricity, gas and other fuels expenditure increased by 6 per cent in 2004/05 and accounted for 15 per cent of the 7 per cent increase in total housing costs for the year. Rising oil prices pushed these costs higher.

– Council tax contributed to the increase in the cost of owning and running a house in 2004/05 – expenditure on council tax increased by 8 per cent to an average of £998. Council tax made up 16 per cent of the cost of owning and operating a household in 2004/05. London homeowners paid the most council tax, £1,155 per year.

Martin Ellis, chief economist at Halifax, said: “The cost of owning and running a home increased at a much faster pace than inflation for the second successive year.

“Further above inflation rises in fuel and council tax bills are expected to drive up further the costs of owning and running a home this year. Council tax and utility bills will overtake mortgage payments as the largest cost for homeowners this year.”


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