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Retail Price Index (Mortgage Interest)

Volume 974: debated on Sunday 11 November 1979

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asked the Secretary of State for Employment what is the amount of mortgage assumed for the purpose of the retail price index; what weight is given in the index to the payment of mortgage interest; what is the assumed rate of interest; what effect each 1 per cent. change in interest rates has on the index; and whether account is taken of changes in taxation rates when calculating the effect of interest changes on the index.

The weight for mortgage interest, as with other items in the retail prices index, is calculated from actual payments by households in the family expenditure survey. It is based on average payments of mortgage interest after deduction of income tax relief, and in January 1979 was 31 in 1,000. The interest rate used is that recommended by the Building Societies Association; an increase of 1 per cent. in the mortgage interest rate would add about one quarter of 1 per cent. to the current level of the retail prices index. Changes in the basic rate of income tax are taken into account in the calculation of changes in mortgage interest payments.