INCREASES in the cost of mortgages, rents, home improvements and household maintenance have contributed towards the rise in inflation, according to a director of a local estate agent.
Nick Renny (pictured), of Martel Maides, said the latest figures, which show that housing costs rose by 4.7% in the 12 months to June, still carried some of the effect of interest rate rises last year and many mortgage holders had not yet seen the benefit of recent cuts in the base rate.
Mortgage interest payments account for the majority of the increase in the housing category, which has the largest weighting in the RPI calculations, but this also includes rents, property tax, home improvements and maintenance costs.
Mr Renny said that although house prices had stayed relatively static, many of these other costs had increased in the past year. The size of the RPI rise was therefore not unexpected.
‘So far this year we have not seen any significant increase in house prices, but a lot of households have seen their mortgages go up. It is an unusual situation at the moment where the base rate has fallen but the cost of mortgages has either stayed the same or even risen,’ he said.
‘In the past, the rates lenders charged closely followed the Bank of England base rate, but with the current credit squeeze that’s not been the case, the two have become decoupled.
‘When you add in the increases in other housing costs, such as rent and home improvements, the effect of that is this rise in RPI.
‘Obviously increasing mortgage costs have an impact on affordability, which may have a dampening effect on house price inflation. We are not expecting to see prices rise in 2008 but we are hopeful that activity in the market will increase later in the year.
‘Even if the base rate comes down again, many lenders might still be reluctant to follow it and it could be a while before we see the beneficial effect in lower mortgage costs.’
Article posted on 17th July, 2008 - 2.29pm
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