Postcodes that cost you money

by Robert Powell on 18 February 2011  |  3 comments
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Robert Powell investigates which postcodes will add pounds to your monthly bills...

A series of letters and numbers is not a reply I’d generally expect to the question: “Where are you from?” But that’s exactly the reply I got from an extremely posh man who I met on the first day of my master’s degree.

“SW3,” he quipped proudly. Being new to London, I had no idea what he meant. So I nodded politely and then slunk off to google his reply. It was the postcode for Kensington and Chelsea.

Yes, what started as a system to modernise the postal service has quickly morphed into a social tag used not only by rich folk to boast of their exclusive abodes but also by companies to make decisions about prospective customers.

Here are a few examples of how your postcode could be costing you pounds...

Insurance

Your postcode obviously affects your home insurance premiums – as location is used as a way of pricing the risk of theft, flooding and subsidence. But what you may not realise is that postcodes also affect car insurance rates.

So if you live in an area with high levels of crime and car insurance claims then you could see your premium pushed up.

Every area in the UK is risk assessed and divided into groups from A (low risk) to F (high risk). Here’s a table with all of the postcodes that fall into the 'high risk' category.

Source: carinsuranceexplained.com

If your postcode does fall into one of these the higher categories you may find your premiums ballooning if you don’t keep your vehicle in a garage. There are also large areas of Glasgow, Liverpool, Birmingham, Manchester and London that are not ranked under this system – head to carinsuranceexplained.com for a full list.

Car insurance premiums could also be set to shoot up for women if new legislation is passed next month – you can find out why by heading over to Why women should pay more for car insurance.

Life insurance and pensions

Grim as it may sound, life insurance and pension annuity providers are essentially taking a gamble on your life when they set your rate. So providers need as fuller picture as possible of your life expectancy for them to stand the best chance of not ending up out of pocket.

One method they’ll use to predict this is by looking at the average life expectancy in your postcode. If you live in a postcode with a higher than average life expectancy, you’ll pay lower life insurance premiums but receiver a worse annuity rate. If your postcode has a lower life expectancy, then your annuity will be higher but you’ll pay more for life insurance.

Here’s a table showing the areas of the UK with the highest and lowest life expectancies:

Source: Office for National Statistics

As you can see, the gap in life expectancies between Glasgow and Kensington and Chelsea is almost a decade. But even within local areas, life expectancies can still vary greatly. The London Evening Standard reported last week that the gap has stretched to almost 20 years just within the borough of Westminster. Residents of Belgravia and Knightsbridge can expect to live to 92 while those living less than two miles away near Marylebone and Edgware Road will only reach 72.

These variations could impact on your life insurance and annuity rates greatly. You can find out more about life insurance by reading Seven steps to cheap life insurance or get a quote by using our life insurance calculator.

Utilities

Recent research from energyhelpline.com shows that it’s also somewhat of a postcode lottery when it comes to energy bills.

The research looked at annual gas and electricity bills from Ofgem for an average household using their default supplier in 14 different areas of the UK.

Here are the results:

Source: energyhelpline.com

As you can see, energy from a region’s default supplier seems to be more expensive in the North than in the South. But unlike most of the other postcode lotteries I’ve detailed in this article, these expensive regional rates can be avoided. Many households don’t even realise they are using the areas default supplier and – as the figures show – could be missing out on hundreds of pounds a year by not switching energy tariffs.

Head over to our utilities comparison centre to find out if you could be saving money on your energy bills.

Financial state

The general financial state of your postcode will also impact on the rates you are given from lenders.

As I reported in How your postcode costs you money, the area you live in can have an effect on your credit rating. Lenders presume that like-minded people tend to live near each other, so if your postcode is identified as particularly indebted overall, they’ll assume that you’ll be in debt as well.

Yet the results of surveys attempting to pin point the most in-debt area of the country aren’t what you might expect. Affluent areas like Richmond upon Thames, Central London and Salisbury come high up the list. This is presumably because residents in these areas have higher levels of spending power, and hence can afford to be in more debt.

In fact, levels of debt are used in conjunction with other information such as house prices, social stats and levels of fraud to get a complete picture of the ‘financial credibility’ of the postcode you live in.

In some areas with high levels of ID theft lenders will even deliver credit or debit cards by courier or within a disguised envelope to reduce the risk of it falling into the wrong hands. You can find out whether you live in one of these ID theft hotspots by reading Revealed: Britain’s card fraud capital.

What do you think?

Is it right that certain postcodes cost more to live in than others? Are these appropriate generalisations for lenders and insurers to be making about prospective customers?

Let us know your thoughts in the comment box below.

More: Will Your Postcode Affect Your Pension? | Poorer Postcodes To Get Better Pensions