Why are so many of us skint despite talk of ‘recovery’?
Pricewatch: Many of us are still scrabbling around back of couch looking for change
Many of us still find ourselves looking disconsolately at drained bank accounts towards the end of the month
For years now we have been told by the powers that be that the good times are here again.
And while it may be true that the economy has recovered to an extent that was almost entirely unimaginable a decade ago, many of us still find ourselves looking disconsolately at drained bank accounts towards the end of the month or scrabbling around at the back of the couch looking for change.
It is not all that hard to see why.
Once the cost of groceries, mortgage payments, electricity and gas bills, the cost of running a car, phones, a modest social life, home insurance, various insurance policies, school and childcare, one holiday, a fairly careful Christmas and some other things generally speaking considered essential to get by are added up, a typical family who bought even a small home during the boom years are likely to get through close to €60,000 over the next 12 months.
And that figure is an after-tax one which means many households will need a combined income of in excess of €100,000 to live a hardly lavish life.
According to independent figures compiled by this newspaper, coupled with the eighth annual cost-of-living survey published this morning by AA Home Insurance, prices in key areas have climbed over the last 12 months.
The annual cost of owning and maintaining a family home has risen by over €1,000 according to the latest “Cost of Running a Home” analysis from AA Home Insurance, with the average homeowner now spending over €17,000 on owning and maintaining a home.
And the AA figures do not include things like food, clothes, transport, childcare and all the rest.
According to the insurance intermediary the cost of running a home in Ireland is now a very precise €17,393.25, a significant increase from last year’s calculation of €16,374.45 which is approximately 44 per cent of the current average Irish national wage.
Mortgage and property tax are calculated based on the current average property price and all the other expenditure – from broadband to heating, to the cost of domestic appliances – is researched and calculated according to prices as of October 2019.
The increase in the cost of running a home comes following a rise in the national average price of a second hand home in Ireland. Values increased from €243,000 during the third quarter of last year to €269,000 in the third quarter of this year – an increase of €26,000 which caused a significant spike in mortgage repayment costs, the main driver behind the increase in home ownership costs.
According to the AA’s calculations, those who took out a 90 per cent mortgage this year are likely to pay €11,021.04 per annum in mortgage repayments – an increase of 9.45 per cent on last year.
“While we’re still significantly off the peaks seen during the Celtic Tiger, house prices have continued to surge in the past 12 months representing a major issue for both those looking to acquire their first home and those trying to meet their monthly mortgage repayments,” says Conor Faughnan, the AA’s Director of Consumer Affairs. “In fact, the increase in monthly mortgage repayments almost single-handedly accounts for the over €1,000 increase in home running costs that we have seen this year."
He said there was some good news in that “many of the other increases seen in home running costs are offset by drops in the cost of electricity and broadband/TV charges, meaning if you were fortunate enough to purchase your home when prices were lower, your financial situation is largely unchanged”.
He says the percentage of the average national wage which has to be put aside to cover household costs has increased by almost 1.5 per cent, something which will be a major concern for families across the country.
“This is particularly true for those trying to get their foot on the property ladder, who are facing many of the costs associated with home ownership, whilst also trying to meet rental payments and save for a deposit,” Faughnan adds.
“If you look at both housing prices and home running costs as measured by the AA over the past 5 years, annual costs have increased by almost €2,000 with house prices increasing by over €60,000. This is certainly a worrying and unsustainable trend and highlights the need for urgent action by Government and local councils to ensure the housing stock isn’t outstripped by demand.”
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 €4,653.48 more on their mortgage repayments than their counterparts who purchased their homes in the third quarter of this year.
Maintenance, repair and contingency funds is the second single most expensive bill for Irish householders and the AA estimates that the average homeowner is likely to spend or set aside €1,264.35 each year to keep up with wear and tear.
Taking annual average usage figures of 11,000 kW and 4,200 kW for a three or four bedroom detached house respectively, the AA estimates that the average homeowner will spend €815.72 heating their home this year and a further €99.79 on electricity.
Other costs included in the AA Home Insurance study were home insurance which is calculated at €570.95, telephone and broadband bills at €420, household appliances at €554.86, household cleaning products at €340.94, and domestic refuse collection at €300.72.
Among the variables that remained the same as or close to last year were television licence costs at €160 and the cost of home appliances. It also points out that AA Home Membership has remained static at €125.88.
Adding up the other essentials
While the figures from the AA are comprehensive they only zoom in on the costs of keeping a roof over your head and fairly important elements 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 and we used the standard financial statement that banks ask customers to fill in if they are trying to restructure debts.
Among the costs covered are health insurance, transport expenses, food, clothes and grooming, entertainment, childcare, education and mobile phones. We decided to add Christmas, four birthdays and one family holiday into the mix to see how costs bearing up this year. The news is not great.
Health insurance: €3,889
The increased cost of medical treatment in Ireland continues to outpace general inflation by a rate of around six to one, with the higher price of advanced healthcare likely to lead to more health insurance hikes in the years ahead according to research published by Mercer Marsh Benefits this summer. Its Medical Trends Around the World report suggests that underlying medical costs in the Republic rose by 4.2 per cent in 2018 compared with a general inflation rate of just 0.7 per cent and it anticipated similar increases this year and next.
Last year we estimated the annual cost of a fairly average health insurance policy covering two adults and two children at €3,097.
There are more than 300 plans on the market but we compared three broadly similar family-friendly plans. Laya Healthcare’s Essential Connect Family plan will cost two adults and two children € 4,306 while the VHI’s Family Plan Level 1 cost €3,962. A Family Focus plan from Irish Life Health, meanwhile, is €3,401. The average comes out at €3,889 compared with €3,097 and €3,176 in 2017.
The average motorist drives 16,000km (9,900 miles) every year and the average price of petrol is €1.44 a litre – which is exactly what it was this time last year. Driving the average family car, which does 12.4km per litre (35 miles per gallon), the average Irish driver will spend about €1,857 on petrol compared. It was the same last year and €1,755 in 2017.
We will allow motor tax of around €350 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 although prices have fallen back slightly compared with last year’s highs, our notional family can expect to have little change out of €1,050 this year.
If you spend €14,000 on a car, keep it for five years and then sell it for half the price you paid for it, the annual cost is €1,400, which takes the total running costs to €5,057 compared to €4,815 last year.
Food inflation has been inching up in recent months and industry figures point to prices climbing by around 2 per cent. Last year we allowed a weekly grocery spend of €175 and our total bill for the year came to €9,100. If we increase the average weekly spend to €180 then the annual bill will climb to although that doesn’t factor in a Christmas blow-out of any kind.
Social inclusion: €5,092
If we 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 then the the annual spend on social inclusion for a family of four will come €5,720 compared with €5,092 a year earlier. We have been slightly more generous to both our fictitious adults and kids, increasing the allowance for the grown ups by €2 a week and the children by €5.
Education and childcare: €8,776
According to the annual school costs survey published by Barnardos in August when the cost of clothes, shoes, books, stationery, classroom resources and the voluntary contribution are totted up, a child going into senior infants will cost € 340, while the cost of sending a child into secondary school climbs to €736. If we allow a further €500 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 €1,576 – down slightly on last year’s figure.
Schools in Ireland are obliged to open for 183 days a year, so if both parents are working, then after-school childcare costs will have to be added to the bill. Our notional family have found themselves a childminder who charges €200 a week for the school year of 36 weeks, which is a total each year of €7,200. Combining that and the education costs, the total spend rises to €7,745.
Assuming the man in our notional household visits the barber eight times a year and his partner visits a hairdressers once every 10 weeks (plus once for a special occasion), the total cost of haircare alone for the adults will reach €800. In previous years we have neglected to allow anything for children so their hair is probably quite long now so we will set aside €100 each for hair cuts and the like for the kids. In past years we have given our notional family an allowance of €50 a month for clothes and shoes but that has been for all four of them. If we were to increase that to a perhaps more realistic – but still far from excessive – €70 a month then the total cost of clothes and grooming rises to €1,840 which is €440 more than last year.
Births, holidays and Christmas: €3,400
In previous years when we have run these numbers we have not included birthdays, Christmas and holidays. 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 €800. And we will set aside €2,000 to cover the cost of a summer holiday and bearing in mind that even cheap flights to Spain during the summer will cost around €1,200 we are not talking about anything overly flash.
Add up all the expensive not covered by the AA’s Household Survey then and you are looking at a total outlay of €37.414.
Add in the AA figures and the average person who bought a home at the average price in 2019 could easily spend a total of just under €55,000 over the next 12 months. Those who bought a property at the height of the boom might find themselves spending closer to €60,000.
It is any wonder so many of us are still skint despite all that talk of recoveries?