Pricewatch: What does it cost to run your household?

Just over eight years ago, the AA published the first of a continuing series of surveys looking in forensic detail at the annual cost of owning and maintaining a family home.

It was a tale of two timings.

People who bought homes when the property bubble was at its most inflated were lumbered with costs of just over €22,000 each year when sky-high mortgage repayments and a host of other household bills including utilities such as heat, light and broadband were taken care of.

The costs for people who bought homes in 2012 when the bubble had well and truly deflated meanwhile, were put at €15,400. Neither figure included food, clothes, running a car, entertainment or holidays.

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Pricewatch added those costs to the tally and came up with an after-tax figure of about €48,000 for a household made up of two adults and two children.

But where are we now?

The latest Cost of Running a Home analysis from AA Home Insurance says that on average, an Irish homeowner can expect to spend €17,811 over the next 12 months, an increase of more than €400 on last year’s calculation of €17,393.

Mortgage and property tax were calculated based on the current average property price while all other expenditure – from broadband to heating, to the cost of domestic appliances – was researched and calculated according to prices as of October 2020.

The biggest expense was the cost of buying a home and for its exercise the AA looked at the national average price of a second- hand home.

Values increased from €269,000 during the third quarter of last year to €282,000 in the third quarter of this year – an rise of €13,000. This increase in the cost of buying a home has caused a significant rise in mortgage repayment costs, the main driver behind the rise in home ownership costs.

Maintenance and repair

According to the AA’s calculations, those who took out a 90 per cent mortgage in 2020 are likely to pay €11,404 per annum in mortgage repayments – an increase of almost €400 or 3.48 per cent on last year.

Maintenance, repair and contingency funds is the second single most expensive bill for Irish householder, but has dropped by 1.2 per cent since last year, the survey suggests.

The AA estimates that the average homeowner is likely to spend or set aside €1,249 to keep up with wear and tear. This figure equates to slightly over 7 per cent of the overall estimated cost of owning and running a home.

Taking annual average usage figures of 11,000 kWh and 4,200 kWh for a three- or four-bedroom detached house respectively, the AA estimates that the average homeowner will spend €718, a decrease of 12 per cent heating their home this year and a further €979 on electricity a decline of 2 per cent.

However, this year there is increased energy usage by homes during the pandemic. The AA estimating that the average household will spend an additional €210 on gas and electricity combined as a result of more people working from home and some older children who had previously been renting opting to move back into the family home.

Among the variables that remained the same as or close to last year were television licence costs at €160.

Other costs included in the AA Home Insurance study were: home insurance which is calculated at €564, telephone and broadband bills at €396, household appliances costs at €545, household cleaning products (an annual supply of which will cost €334) and domestic refuse collection at €289.

“Despite the economic impact of the Covid-19 pandemic, the average cost of owning and maintaining a home in Ireland has climbed for the fifth year in a row. House prices and living costs remain significantly below the peaks of the Celtic Tiger,” the AA’s Conor Faughnan says.

Energy prices

“The continued upward trajectory represents a major issue for both potential buyers and those trying to meet their mortgage repayments during difficult economic circumstances,” he continues.

“There is some good news, however, for homeowners as many of the day-to-day costs, such as heating and electricity, have fallen compared to 2019.”

In the period since 2015, the cost of running a home has increased by over €2,000. “However, those homeowners who regularly review their bills, purchases, and subscriptions could be faring better than most, as on everything from your mortgage to your bin service the report found clear value in shopping around.”

While the AA bases its calculations on those of a new buyer, there is also the “negative equity generation” – homeowners who bought their house at the peak of the boom.

The AA gives figures for that group too, assuming the house is bought in 2007. That group currently pays €4,270 more on their mortgage repayments than their counterparts who purchased their homes in the third quarter of this year.

Someone who bought a house in Dublin at the height of the boom and paid substantially more than the national average is likely to be paying a whole lot more than that.

Fictional family: the cost of living

The figures from the AA are commendably comprehensive – and include the cost of your Cif and Toilet Duck – but they only zoom in on the costs of keeping a roof over your head. That means that fairly important costs of living such as food, transport, health and actually having a life are not included.

At least they are not included by the AA.

As we have done in recent years, we set about working out how much a typical family of two adults and two children might need to spend over the next 12 months to have some class of life and we used the standard financial statement that banks ask customers to fill in if they are trying to restructure debts.

Among the costs we covered are health insurance, transport, food, clothes and grooming, entertainment, childcare, education and mobile phones. We also include Christmas, four birthdays and one family holiday into the mix to see how costs bearing up this year. The news is not great and we reckon that our estimates are an underestimation.

Health insurance: €4,039

For three months earlier this year, Ireland effectively had no private healthcare system with all the major private hospitals subsumed into the public system over fears that a surge in Covid-19 cases would overwhelm the country’s medical capacity. It didn’t happen and, by July, the three main players in the health insurance market were once more operating as normal and charging as normal.

For some time the cost of medical treatment in Ireland has outpaced general inflation by a rate of six to one, with the higher price of advanced healthcare likely to lead to more health insurance hikes in the years ahead.

In 2018, we estimated the annual cost of a fairly average health insurance policy covering two adults and two children at €3,097. In 2019, we estimated the cost at €3,889. So where are we now?

There are over 300 different private health insurance plans on the market and there are very big savings that can be made without losing anything by way of cover by shopping around. As with many areas of our lives, people are reluctant to switch providers so for the sake of this exercises we won’t either.

Last year to get our average figure we compared three broadly similar family-friendly plans. Laya Healthcare’s Essential Connect Family plan, the VHI’s Family Plan Level 1 and the Family Focus plan from Irish Life Health.

We looked at the same plans this year. The VHI plan was €1,670 for an adult and €535 for a child (€4,410). The Laya option was coming in at €1,427 for an adult and €274 (€3,402) while the Irish Life plan was priced at €1,724 for each adult and €429 per child (€4,306).

It is important to stress that these plans are not identical but they are broadly similar. If we take an average of the three policies for our imaginary family then the annual cost or private health insurance this year will be €4,039. Last year we put the average at €3,889.

Motoring: €5,262

There is some good news for motorists this year as the average price of a litre of petrol has fallen quite considerably over the last 12 months and in November of last year it cost €1.44 compared to €1.25 today. We are going to ignore for a moment the fact that over the last eight months motorists have been driving much, much less than last year or any year since cars became as popular as they are and work with the normal averages.

In a year other than 2020, the average motorist could expect to drive 16,000km (9,900 miles) every year, If the average price of petrol is €1.25 a litre then, driving the average family car, which does 12.4km per litre (35 miles per gallon), the average Irish driver will spend about €1,612 on petrol over the next months compared with €1,857 last year. It was €1,755 in 2017.

We will allow motor tax of €250 to allow for an increase in the number of electric and hybrid cars. and €400 to cover servicing and maintenance.

The cost of comprehensive insurance for two adults depends on many factors – notably location, driving history, no-claims bonus and type of car, and prices have started climbing again so we will say our notional family can expect to have little change out of €1,200 this year.

We have to allow for the cost of a car and depreciation too. If you spend €18,000 on a car, keep it for five years and then sell it for half the price you paid for it, the annual cost is €1,800. When we tot up all the numbers the total running costs of one car comes to €5,262 compared with €5,057 last year.

Food: €9,173

According to the central statistics office the cost of food and non-alcoholic beverages fell slightly over the 12 months to the end of September. Last year, we allowed a weekly grocery spend of €180 which meant the annual cost was €9,360.

If that declines by 2 per cent – and again we are ignoring the Covid-shaped elephant in the room which has seen grocery spending climb – then the annual cost of groceries will fall by €187 to €9,173 although that doesn’t factor in a Christmas blowout of any kind.

Social inclusion: €5,720

This is a tricky one this year because the opportunities for social inclusion of any kind have been dramatically reduced and we’re not sure sitting on your couch watching the Marvellous Mrs Maisel counts as social inclusion.

But for the sake of consistency we will do what we did last year and allow €40 per adult per week to cover the cost of a social life – including all sports activities and social occasions and €15 per child per week. That takes the annual spend on social inclusion for a family of four to €5,720.

Education and childcare: €1,585

According to the annual school costs survey published by Barnardos during the summer, when the cost of clothes, shoes, books, stationery, classroom resources and the voluntary contribution are totted up, costs will average €350 for primary school students and €735 for post-primary students.

If we allow a further €500 between the two of them to cover costs for trips and extra-curricular activities and assume our notional household has one child in senior infants class and one in first year, then the annual cost of a free education climbs to €1,585 – up slightly on last year’s figure.

We have not included the costs of creches or after-school care in this final tally – if for no other reason than the total would make many parents weep – but as anyone with a child in a creche knows all too well, such cost can easily rise to in excess of 10 grand a year for one child and the same again for all the rest.

Clothes/grooming: €1,340

Last year we put this figure at €1,840. That was based on an assumption that the man in our notional household visited the barber eight times a year and his partner visits a hairdresser once every 10 weeks (plus once for a special occasion). On that basis, the total cost of haircare alone for the adults reached €800. We aside €100 each for haircuts and the like for the kids.

We gave our notional family an allowance of €70 a month for all four of them and not each. Given that the barbers and hair salons will be closed for at least four months of the year and the need for clothes somewhat reduced during the lockdown, we are going to take €500 off last year’s figure for the next 12 months.

Mobile phones: €1,800

Now, let’s say our fictional family have three mobile phones between the four of them and spend €50 a month on each of them. The monthly cost then will come in at €150 while the annual cost will easily top €1,800.

Births, holidays and Christmas: €3,600

If we allow a spend of just €150 on birthday presents for each of the four people in our family then the total cost comes to €600. Most surveys suggest that the cost of Christmas will come in at well over €1,000 for Irish families but we will only allow €1,000. And we will set aside €2,000 to cover the cost of a summer holiday. Who knows, next year we may even be able to travel overseas.

So, if you add the AA figures for the average person who bought a home at the average price in 2020 to our figures, the fictional household could easily spend a total of €50,330 over the next 12 months. People who bought a property at the height of the boom might find themselves spending close to €55,000. And of course these numbers are after tax which means our notional couple would need to earn almost twice that just to keep their heads above water.

We are all too aware that there are many, many people out there who don’t earn close to that and we know that there are many people struggling to pay rents of well in excess of €25,000 a year as well as much higher childcare costs than we have outlined here.

Is it any wonder so many of us are so smashed all of the time?