Cost of housing rises to three year high

The cost of owning and running a home in the UK has risen to its highest level since 2008 despite historically low interest rates, according to new research by Halifax.

Over the past year, the average annual cost associated with owning and running a home rose by 1.4% (£127) from £8,956 in March 2010 to £9,083 in March 2011. Despite this increase, housing costs in March 2011 were still some 3.5% (£328) lower than the average annual total in March 2008 (£9,412).

The increase in housing costs over the past year was driven by rises in the cost of 9 out of the 11 housing expenditure categories. In monetary terms, electricity and gas charges (+£68) and maintenance costs (+£45) were the biggest contributors to the overall rise in housing expenses.

Overall, utility bills have risen by 19% (£237) since 2008: the biggest increase of any housing expenditure category. Housing maintenance and repair expenditure saw the next largest increase (17%).

The fall in housing expenses over the past three years was driven entirely by the substantial decline in mortgage payments. The average mortgage rate paid by existing borrowers fell by 231 basis points between March 2008 and March 2011 from 5.80% to 3.49%, helping to reduce the average annual mortgage payment (interest and capital repayments) by 21% (£956). Mortgage payments were the only housing expense category to see a fall between March 2008 and March 2011 and also recorded the biggest decline over the past year (-2%).

If mortgage costs were excluded from the calculation then housing related expenditure would have increased by 13% between March 2008 and March 2011, greater than the rise in inflation over the same period (10%). In addition, those paying rent rather than a mortgage have seen their housing costs rise by 10% over the same period.

All regions have seen a fall in housing costs since 2008
The cost of owning and running a home in London fell by 5.9% between March 2008 and March 2011; the largest of any region. The South East (-4.9%) recorded the second biggest decrease followed by the East of England (-4.5%). Those living in Northern Ireland saw the smallest drop in housing costs (-0.3%).

Suren Thiru, housing economist at Halifax, commented: “Household finances remain under pressure with the significant drop in mortgage payments since 2008 mostly offset by increases in other household bills. Rising utility bills have been a clear driver behind this, along with increases in maintenance costs and council tax charges. The current strain on household finances is particularly concerning at a time when earnings growth remains weak.”

Due to the 21% decline in mortgage payments since 2008, mortgage payments’ share of total housing costs declined from 48% in March 2008 to 39% in March 2011. At the other end of the scale, electricity and gas bills’ proportion of housing costs rose from 13% to 16% as a result of the 19% rise in such costs over the past three years.

Mortgage payments remain the largest single component of the cost of owning and running a home, accounting for 39% of total costs. Electricity and gas charges (16%) account for the second highest share followed by council tax charges and domestic rates (14%).
Housing costs by region

London (£11,783) has the highest average annual costs of owning and running a home, followed by the South East (£10,496). Annual housing costs are lowest in the North East (£7,421).
Despite having the highest absolute costs, housing expenses are the lowest in London when expressed as a percentage of gross average full-time earnings (25%). Home owning and running costs are highest in relation to earnings in the East of England (31%).

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