Household costs 'outstrip inflation

The cost of owning a home rose by more than three times the rate of inflation in the 2004/05 financial year, according to research published today by mortgage lender the Halifax.

The combined cost of mortgage payments, council tax and fuel bills was 7% higher than in the previous year, increasing at more than the rate of inflation for the second year running.

And over the three years to April 2005, housing costs rose by 14%, far outpacing the 4.6% rate of inflation over the period.

Running a home in the UK cost an average of £6,366 over the year, the bank said, accounting for 17.5% of homeowners' income and making up 23% of household expenditure.

This dwarfs the amount spent on food and drink, clothing, education and healthcare.

Homeowners in London faced the biggest outlay, spending £8,133 on running a home, and only three regions - Wales, Northern Ireland and the north-east of England - had housing costs below £5,500.

The Halifax said mortgage payments were the biggest cost faced by homeowners, with interest on home loans accounting for 34% of household expenses, or an average of £2,146 a year. In London, mortgage interest averaged £3,134, or 39% of housing costs.

Across the UK, expenditure on council tax was up 8% on the previous year and made up 16% of the cost of running a house, or an average of £998 a year, while utilitiy bills were up by 6% and accounted for 17% of housing costs.

The bank said that recent fuel price hikes, together with last year's council tax rise meant that in the current financial year household bills were likely to outstrip mortgage payments, adding up to the biggest outlay for UK homeowners and pushing up the total cost of owning a property.

It said that in the 2006/07 tax year, these bills could represent 35-36% of housing costs.

"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," said Halifax's chief economist, Martin Ellis.

"Council tax and utility bills will overtake mortgage payments as the largest cost for homeowners this year."

Separate research published by the bank today revealed that the cost of buying a home had increased by 5.5% over the past year, with a 1.4% price jump in February alone.

The rise, which more than cancelled out the 0.4% price fall the lender recorded in January, brought the average price across the UK to £173,498.

The mixed pattern of rises and falls is, according to Martin Ellis, typical of a slower housing market, and the latest rise is not an indication that values are about to soar.

"A number of factors ... should constrain housing demand and prevent a significant and sustained, acceleration in house price inflation in 2006.

"The continuing high level of house prices in relation to earnings will curb the ability of many potential first-time buyers to enter the market," he added.

The February price rise recorded by the lender will be noted by the Bank of England's monetary policy committee which is meeting today and tomorrow to set interest rates.

Howard Archer, chief UK economist at Global Insight, said: "The Halifax data will reinforce Bank of England wariness that a trimming of interest rates could excessively stimulate the housing market and risk sending housing prices markedly higher.

"This not only further rules out an interest rate cut on Thursday, but reduces the prospects of any cut before the third quarter."