Mortgages greatest outgoing for Britons

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Tuesday 24th April 2007

Mortgages account for the majority (60 per cent) of household spending, according to Sainsburys Bank.

Research released by the financial services provider ahead of this months inflation figures found that the cost of mortgages has increased by 12 per cent since 2004.

This reflects the average 12 per cent rise in the cost of living, with households now spending £11,035 on running costs each year.

Gas and electricity represent the greatest area of increase, with prices rising by 27 per cent and 19 per cent respectively.

However, the true cost of living may be higher than the figures suggest, as they were calculated prior to the April inflation announcement.

Since the research was conducted, inflation has risen from 2.8 to 3.1 per cent, more than one percentage point above the two per cent target.

In an open letter to the Chancellor, Bank of England governor Mervyn King advised that the rise in energy prices may be to blame for the high level of inflation.

He stated that the figure may be associated with "an unexpectedly sharp increase in domestic energy prices during the second half of last year".

The Council of Mortgage Lenders this week reported record mortgage figures as consumers seek the remaining fixed-rate packages on the market.

Commenting on the results, Joshua Miller, economist at the Royal Institution of Chartered Surveyors said: "Consumers have rushed to lock into fixed-rate mortgages, seeking security as they anticipate future interest rate hikes."

However, he added: "As we approach the top of the current interest rate cycle, house price inflation will slow as demand eases."

Chief UK and European economist at Global Insight Howard Archer stated that a May interest rate hike is a "stone dead certainty" in light of the inflation figures.

While he recognised the possibility that the Bank of England may opt for a 0.5 per cent rise to stem consumer spending, Mr Archer continued that interest rates are likely to reach their peak towards the end of 2007.

Meanwhile, the Scottish Widows Investment Partnership predicted that average inflation in 2007 will be about 2.7 per cent, anticipating a year-end figure of 1.75 per cent.

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