Cars 'more costly than mortgages'

IT NOW costs more to run the average car than pay the mortgage, according to the RAC. Or does it?

With booming house prices that keep first-time buyers out of the market, a series of interest rate rises and those irksome top-up payments to make up for your under-performing endowment, you would be forgiven for thinking the house had become something of a millstone.

But the RAC claims this is nothing when compared with the cost of running the 'average' car.

Higher petrol prices, dearer insurance and rising servicing bills all add up. Include depreciation and you have a £438-a-month charge for running the average new car.

Mortgages, meanwhile, are a veritable bargain, according to the RAC. It apparently costs just £417 a month to pay off an £80,000 mortgage.

If only. Any lender offering that sort of rate would be trampled in the rush.

And here‘s why. The RAC‘s figures are for an interest-only mortgage and there is no mention of the compulsory buildings insurance that all lenders insist on. That alone would be about £45 a month for the 'average' property – instantly scotching the RAC‘s rather tenuous premise.

A responsible homeowner also needs some way of repaying the mortgage when it has run to term - an obligatory monthly cost that the RAC has decided to exclude.

Only an idiot would count on inflation rendering their mortgage as meaningless as it did for their parents' generation who bought houses before the 1970s.

Not even the most pessimistic economist thinks inflation is going to rise to anything approaching half the rate it reached in the bad old 1970s, when the UK had to be bailed out by the International Monetary Fund and the concept of fiscal responsibility was a national joke.

The RAC's assertions about car-ownership costs are also built on slightly shaky ground. Petrol prices are already falling after last week's fall in the cost of crude oil.

Ane while insurance costs may well rise for the estimated 1m drivers who get caught speeding a responsible driver with a clean licence should still get a reasonable deal. There are bargains on the internet for those who bother to look.

MOT costs are rising but the proposed new fee of £42.10 is still not a vast expense and little different to the monthly premium on your (compulsory) buildings insurance policy.

Depreciation remains the big killer when it comes to running a car. Generally, a brand new car will lose about 20% of its value as soon as you drive it home for the first time – and most cars lose about half their value within 3-4 years. Others lose a lot more.

There isn't much you can do about depreciation, except buy a 'used' car that has already fallen in value.

But even if you do suffer hefty depreciation, your mortgage will still be your biggest expense. Financial experts, rightly, refer to a mortgage as the 'most important' financial decision you will take in life.

Some of the RAC's advice, however, does hold true. RAC Insure‘s Nick Hall says motorists should hunt around for bargains.

'Despite the gloomy outlook of future price rises, motorists can make some savings by shopping around for competitive prices on other costs such as car insurance, servicing, and petrol and ensure that their motoring costs remain lower than their other outgoings.'