UK household wealth jumps by 19% on house prices, stocks

UK household wealth surged by 19% in a year to reach 9.1 trillion pounds ($14.4 trillion) at the end of 2014, data from Lloyds Bank Private Banking show.

UK household wealth has increased by a whopping 75% in the past 10 years from 5.2 trillion in 2004, equivalent to an increase of 126,572 pounds per household.

The rate of growth of UK household wealth was faster than that of consumer prices in the same period, as the retail price index increased by 31%.

It has also exceeded significantly the increase in household disposable income, which rose by 42% in the past decade.

Last year’s 1.5 trillion pounds increase in UK household wealth was the fastest since records began in 2001.

It was due to “a combination of growth in average property prices and the value of financial assets during 2014,” Lloyds Bank said in a statement.

Housing wealth contributed approximately one third to the total rise, or an estimated 452 billion. UK house prices rose by 9% during last year, with double-digit growth in London.

Analysts have warned that a correction may be on the cards for house prices in London, saying that a bubble has been forming, encouraged by the lowest interest rates on record and by various government subsidies aimed at propping up house prices before the elections.

However, there seems to be no imminent danger of the housing bubble bursting and wrecking the economy, as data from the Council of Mortgage Lenders show the number of repossessions falling sharply compared with the financial crisis period.

UK Household Wealth Up, Mortgage Arrears Down

As UK household wealth increases, mortgage arrears fall. Source: CML

The trend has continued its fall over the past year.

The total proportion of all mortgages with arrears equivalent to more than 2.5% of the mortgage balance was 1.03% at the end of the first quarter, down from 1.05% in the fourth quarter of 2014, and well below the 1.24% recorded at the same time last year.

There are 11.1 million mortgages in the UK in total, with loans worth over 1.3 trillion pounds.

Despite the stellar growth in house prices, over the past 10 years housing wealth has fallen as a proportion of total UK household wealth.

Housing now makes up 39% of total UK household wealth, down from 45% in 2004. The proportion occupied by financial assets has risen from 55% to 61%.

Of the total rise in UK household wealth over the past 10 years, 2.7 trillion pounds, or more than two thirds, represents the rise in the value of financial assets, which have more than doubled to 5.5 trillion pounds.

Life assurance and pension funds make up 59% of the total financial assets, while bank and building society deposits make up 24%.

However, UK household wealth is by no means equally distributed. What’s worse, inequality is on the rise as asset price inflation has benefited the already well off disproportionately.

The latest data from the Office for National Statistics show that the richest 20% of households had 105 times more wealth than the poorest 20% in 2010/2012.

This is up from 2008/2010, when the richest 20% had 92 times more wealth than the poorest 20%.

Time for a tax on UK household wealth?

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