NS&I Index Linked Certs closed for new applications

StevieJ

welshmoneylover wrote: »

I'm so glad I bought mine last Thursday :j money has gone from my bank account so just waiting for the paperwork to arrive.

I've never know these to not be on sale, wish I'd bought more now :mad:

Absence makes the heart grow fonder

poppy10_2

Sceptic001 wrote: »

I am pretty certain (but can find no definitive source) that house prices are not included. There would be no justification for inclusion because house prices are a capital cost.

You're wrong. House price appreciation/depreciation is included in RPI, albeit as an indirect proxy for the costs of house ownership. They use the DCLG monthly house price index to calculate this component.

Here's the full methodology from the National Statistics website:

Owner-Occupiers’ Housing Depreciation
Since January 1995, as a result of the recommendations of an RPIAC review of the treatment of owner-occupiers’ housing costs in the RPI, a house depreciation component has been included in the RPI. Its inclusion represents the expenditure that all owner-occupiers would find necessary to maintain their house at a constant quality, the intention of the RPI being to measure prices of goods of constant quality.

Depreciation is measured at current replacement cost. It represents the notional amount needed to be put aside to cover large infrequent renovations required to make good deterioration and obsolescence and does not include routine repairs and maintenance covered elsewhere in the RPI. The cost of depreciation to owner-occupiers is a measure of the amount of housing ‘consumed’ in the current period and, combined with mortgage interest payments, provides a good approximation of the current cost of shelter to owner-occupiers while excluding the investment element of house purchase.

The RPIAC recommended that an index of house prices is used as a proxy for the depreciation component. To understand why this index was chosen as the price indicator, it is necessary to examine first how the weight for depreciation costs is calculated. The market value of the UK housing stock represents the price at which housing could be purchased at current prices, so using a proportion of market value as an RPI weighting component is consistent with the use of a house prices index as the price indicator. Ideally, it would relate to the price of dwellings excluding land, but there is no such index suitable for RPI purposes. Instead, the monthly house price index used is based on the DCLG house price used for MIPs.

Sceptic001

Thanks, poppy10, I love to be proved wrong!

Biggles

poppy10 wrote: »

You're wrong.

No, he's right. There is no capital element (nor could here be) in the RPI.

The element that is included for 'Housing' is intended to measure housing costs such as depreciation of the actual buildings, repair and maintenace costs, insurance etc, ie day-to-day ongoing expenditure. They attempt to measure this by what they call a 'smoothed house price index' - whatever that might be.

StevieJ

If anyone wants some detail here is a paper from last year.

Depreciation costs are meant to capture the cost of maintaining
a constant quality house. They are calculated based on a smoothed time
series of the market value of the UK housing stock multiplied by a de-
preciation factor of 1.4% (taken from national accounts data).

http://eprints.ucl.ac.uk/14661/1/14661.pdf

StevieJ

Article from Feb 2009 discussing the difference between RPI and CPI.

The gap that has opened up between the retail price index and the consumer price index is now 2.9 percentage points - the biggest since March 1992. The main reason for the gap is that RPI includes housing costs, which made the largest contribution to pushing the rate down. The ONS said falling mortgage costs accounted for about 80% of the drop with the other 20% driven by the decline in house prices, captured to some extent by the index. CPI does not include housing.
The Bank has now slashed 4% off rates since October, to leave them at a record low of 1%.

http://www.guardian.co.uk/business/2009/feb/18/rpi-cpi-gap

JoeCrystal

Damn, this is big blow for my monthly savings.

I guess I will keep coming months savings aside for any new potential issues.

Joe

Sceptic001

Biggles wrote: »

No, he's right. There is no capital element (nor could here be) in the RPI.

The element that is included for 'Housing' is intended to measure housing costs such as depreciation of the actual buildings, repair and maintenace costs, insurance etc, ie day-to-day ongoing expenditure. They attempt to measure this by what they call a 'smoothed house price index' - whatever that might be.

Thanks, Biggles, I love to be proved right! :j (embarrassment withdrawn)

I must say it does seem somewhat bizarre to use an index of house prices to measure depreciation. Maintenance costs would surely be better measured by looking at labour and materials of various trades (plumbers, electricians, decorators etc.).

poppy10_2

Biggles wrote: »

The element that is included for 'Housing' is intended to measure housing costs such as depreciation of the actual buildings, repair and maintenace costs, insurance etc, ie day-to-day ongoing expenditure.

Did you bother to read the methodology?

It represents the notional amount needed to be put aside to cover large infrequent renovations required to make good deterioration and obsolescence and does not include routine repairs and maintenance covered elsewhere in the RPI.

The DCLG house price index is used as a component of the RPI. Like I said, their reasons for using it are as as a proxy for the long-term replacement/maintenance cost of housing, but the fact remains that house prices (as reflected by the DCLG monthly index) are an integral part of the RPI.

Biggles wrote: »

They attempt to measure this by what they call a 'smoothed house price index' - whatever that might be.

Easy:

le_loup

JoeCrystal wrote: »

Damn, this is big blow for my monthly savings.
I guess I will keep coming months savings aside for any new potential issues.

Difficult. Nothing out there like it so I suppose holding until reintroduced would be sensible ... but for how long?