€48,000 The cost of running a family home

Tue, Sep 18, 2012, 01:00

An AA survey published today puts a figure of €22,000 on the annual cost of owning and maintaining a home for boom-time buyers – but the financial outlay is much higher when all the bills are paid

‘I GET, GIVE OR TAKE, it works out at about, with expenses, £140,000 a year and I pay 30.3 per cent tax on that so it is about a net £100,000. And out of that £100,000, I run a home in Dublin, Castlebar and Brussels. I want to tell you something, try it sometime when you have a couple of cars and three homes and a few housekeepers and everything else. . .”

That was the infamous response given by then European commissioner Pádraig Flynn when asked about inflated expenses by Barry O’Halloran, a member of the Late Late Show audience (and now an Irish Times journalist, incidentally) in 1999.

The answer was just one of the things that did for the Fianna Fáil politician whose career went into a tailspin almost as soon as he was driven from the Montrose studio that Friday night. People were outraged that a person on such a salary could play the poor mouth.

Fast forward 13 years and echoes of his comments could be heard in an interview given by Irelands highest-paid university president to a Sunday newspaper earlier this month. Dr Michael Murphy earns €232,000 a year as the head of University College Cork, but he was quoted as saying that people in his position “are as challenged at paying their bills as anyone else”.

He went on to say that he had expected a certain standard of living when he got the job five years ago. “When you take on a job as a university head, you have an anticipation that there will be a certain salary going with it. You will have bought the house, you will have got the mortgage, which will be bigger than the one from, you know . So I can tell you that university heads are as challenged about paying their bills today arising from cutbacks as anybody else.”

Pricewatch knows nothing about the state of Murphy’s finances or the size of his monthly mortgage repayments or other outgoings – and we have no real interest in knowing more – but we do know that when a public servant earns close to a quarter of a million euro each year, be they a politician, a hospital consultant or an academic, they would be as well off saying nothing about their struggles to make ends meet.

But if you are not Pee Flynn or Michael Murphy, how much do you need to run a household in Ireland? Until today, any answer would have been little more than speculative guesswork, but a comprehensive piece of research carried out by AA Home Insurance and published this morning makes it much easier to come up with a meaningful figure. And that figure makes for depressing reading. The AA says the cost of a running a house is up to €22,000 a year, but all told an Irish family will need almost €48,000 after tax to make ends meet (see panel).

The average annual cost of owning and maintaining a home in Ireland, based on today’s house prices, is €15,400, the AA study shows. And that is if you are one of the lucky ones. The negative equity generation, those who bought houses at the height of the boom and paid an average price of €344,000 with a 92 per cent mortgage, have to find about €22,000 after tax, or nearly two thirds of the average wage of €35,765 (which is before tax) every year, to keep things going. And that figure does not include food, clothes, running a car, entertainment or holidays.

The negative equity generation is paying €15,700 in mortgage repayments, more than many of their peers are spending on owning and running their homes combined.

A homeowner who buys a house today at the current average market price of €172,000, meanwhile, is likely to pay in the region of €9,000 on mortgages repayments each year.

“If you’re unfortunate enough to be one of the negative equity generation and your finances are stretched, chances are you’ll know where every penny is going,” says the AA’s Conor Faughnan. “For others where there is less scrutiny on the household budget we’d imagine people will be genuinely shocked at how much they’re spending on their homes each year.”

What, you may ask, is the AA doing trawling our supermarkets looking for the price of cleaning products or wandering the aisles of electrical warehouses to see how much washing machines and flat-screen TVs cost? Don’t they just do cars?

Not really. Over the last couple of years, the company has ramped up its presence in the home market with its home insurance and home emergency response service.

It has used its own insurance databases to record that after mortgage repayments, repair and maintenance is identified as the next biggest single cost faced by Irish homeowners, and it estimates that the average homeowner is likely to spend or set aside €1,290 each year to keep up with wear and tear.

Other big costs to stand out during the study were home heating and electricity bills, both of which have been affected recently by rising fuel commodity costs and the weak performance of the euro against sterling.

Taking annual average usage figures for a three- or four-bedroom detached house, the AA estimates that the average homeowner will spend €1,210 heating their home this year and a further €1,024.43 on electricity.

And that is before the latest price hikes from all the providers, due to come into force next month, are factored in.

Other costs included in the study are home insurance (building and contents combined) which comes in at €500, a telephone and broadband bill of €357.07, bin charges at €289.68 and a basic digital TV packages at €285.

The repair and replacement of household appliances is set at €662.03, while Irish households will spend as much as €300 on cleaning products. Finally, among the fixed charges included in the AA’s study were the household tax at €100 and TV licence at €160.

“There’s always tremendous interest in the cost of running a car and we thought a report on the average cost of running a home in Ireland would make for some pretty compelling reading,” says Faughnan.

“As home insurance providers, we know well how price-sensitive customers are these days and we hope this study helps in highlighting areas where homeowners can look to reduce their costs.”

There are certainly ways people could use this study to save themselves money. The AA looked at the cost of home heating with four companies using a range of methods and found there was a price difference of €171 between the most expensive provider referenced and the cheapest – a person with Airtricity who does not pay their bills by direct debit will pay an average charge of €1,260 while someone paying by direct debit with Flogas will pay €1,089.

There is also a substantial price discrepancy between the dearest electricity provider and the cheapest. Someone who signed up with Bord Gáis Energy’s e-billing and paid their monthly bill by direct debit is spending €971.89 annually, while a person on a standard contract with Electric Ireland (or the ESB to give it the name many people still recognise it by) will have to pay €1,094.14 – €122.25 more.

It works out the cost of nine appliances based on the average price in three retailers and the average lifespan of each product. Mid to lower price range products were selected, which may explain their surprisingly short lifespans.

A vacuum cleaner will cost you an average of €42 a year of the three years you will get out of it, while a dishwasher will set you back €71.32 and last you five years.

The most costly domestic appliance is your TV which, the AA says, will cost an average of €190.99 annually over the five years you have it. Although we have to say, if we buy a 42” plasma telly we’ll want it to last more than five years. The kettle is the cheapest appliance and costs €11.65 a year for two years.

Many people may be alarmed by how much they spend on household cleaning products each year. According to the AA, that figure is €300. For that sum you will get a year’s supply of 18 products including Cif, toilet cleaners, polish, rubber gloves, Dettol, Mr Muscle and more.

When it comes to TV, the AA cites the two main providers. UPC has a price tag of €264 for its basic digital TV package, while Sky comes in at €306.

Bin charges are broken down by area with the average coming in at €289.68. When it comes to broadband, the average annual cost is €396.34 and there is little regional price differential.

It is also worth bearing in mind that these figures do not include medical expenses, holidays or the property tax coming down the tracks, all of which will drain the coffers further. Is it any wonder so many are struggling to get by?

€25,833: The yearly cost of the other expenses that eat into your budget:

While the AA survey is pretty comprehensive, it stops short of offering a clear picture of exactly how much money is needed to keep an Irish household going – and the grim reality that it will cost a whole lot more than €15,000 .

When a person in financial distress approaches a bank, one of the first things they are required to do is to fill in a financial statement which includes many of the figures outlined in the AA study.

Also covered in the statement are the cost of health insurance, travel costs including car insurance, tax, petrol and car maintenance, food, clothes and grooming, entertainment, childcare, education and mobile phones.

* Health insurance €2,201

There are a huge number of plans and a huge number of variables when it comes to health insurance. We compared four broadly similar family-friendly plans – Family Value from Aviva (€2,172); Better from Glo (€1,980); Essential Complete from Laya (€2,324) and Family Plan Level 1 (€2,328). The average of the four comes out at €2,201.

* Car €4,878

The average Irish motorist drives 16,000km every year and the average price of petrol is €1.70 a litre. Driving the average family car which does 35mpg – which equals 12.4km per litre – the average Irish driver spends about €2,200 a year on petrol.

The cost of comprehensive insurance for two adults depends on a multiple of factors, notably location, driving history, no-claims bonus and type of car, but our notional family would have little change out of €800.

The average age of a car in Ireland is now more than seven years, so annual motor tax based on engine-size for a 1.6-litre mid-sized, fairly modern car will be another €478, while at least €400 will have to be put aside to cover servicing and maintenance. If you spend €10,000 on a car, keep it for five years and then sell it for half the price you paid for it, the annual cost is €1,000 which takes the total running costs to €4,878.

* Food €5,390

According to Bord Bia, the average Irish household spent €1,244 on food over a 12-week period earlier this year. This equates to a weekly spend of €103.66 or a yearly cost of €5,390.

* Entertainment €3,000

Banks may like to consider this category a luxury, but the reality is people need an outlet and, according to the Money Advice and Budgeting Service, the cost of some class of social life is an essential part of any financial assessment.

But how much is appropriate? We carried out a straw poll on Twitter last week to see what people felt would be the right amount. While one person said they spent close to €700 a month on entertaining themselves, a great deal more said they had less than €100 left each month to spend once all essential bills were taken care of. Given the cost of play centres, swimming pools and cinema tickets, the online consensus which we would tend to agree with was that allowing €250 a month to cover the entertainment costs of our notional family of four would not be unreasonable. This would take the annual spend to €3,000.

* Mobile phones €964

There is a dizzying array of mobile phone packages on offer depending on how often you use your phone, what type of phone you have and what you use it to do. While bill-pay tariffs can start for as little as €17 per month, the average Irish mobile phone user’s monthly bill is substantially more than that, and it will come as little surprise to anyone that we pay a lot more than the EU average to talk.

According to figures from ComReg, the average monthly mobile phone bill in Ireland is €36, so if there are two adults in a household making the average number of calls and sending the average number of texts, the annual cost is €864. While handsets can be given away free, there are costs associated with many smartphones and they do get lost or stolen, so we can assume the yearly annual running cost would be about €50, taking the total household cost to €964.

* Education €8,000

The back-to-school costs alone are about €400 per child, to which you would have to add a further €400 to cover the rest of the school year. Assuming our notional household has two children in primary school, the annual cost per child is €800 to which afterschool childcare costs of €200 per week for the school year have to be added, which brings the total to €4,920.

* Clothes/grooming €1,400

Assuming the man in our notional household visits the barber eight times a year and his partner visits the salon just once every 10 weeks (plus once for a special occasion), the total cost of hair care alone will reach €800. If the family then spends just €50 a month on clothes, the amount needed rises to €1,400.

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