Cost of buying and owning property in UK increases despite low interest rates

Despite higher rates, UK property market improving

The cost of buying and owning a home in the UK has increased to a three year high despite historically low interest rates, according to new research published today (Monday May 16) by the 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 research found.

The increase in housing costs over the past year was driven by rises in the cost of nine out of the 11 housing expenditure categories which the research used including mortgage payments (interest and capital repayments), council tax, spending on maintenance and repair, water supply, electricity, gas and other fuels, household appliances, tools and equipment, goods and services for routine household maintenance, telephone accounts, toiletries and household insurance.

It found that in monetary terms, electricity and gas charges increased by £68 and maintenance costs were up £45, to become the biggest contributors to the overall rise in housing expenses.

Utility bills have seen the largest rise over past three years, up by 19% to £237 since 2008, making them the biggest increase of any housing expenditure category. Housing maintenance and repair expenditure saw the next largest increase at 17%.

It also found that mortgage payments have fallen by more than a fifth since 2008. 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% to £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, down 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 at 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%, the largest of any region, the South East saw a fall of 4.9%, followed by the East of England, down 4.5%, and Northern Ireland saw the smallest drop in housing costs at 0.3%.

‘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,’ said Suren Thiru, housing economist at the Halifax.

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