Total (net) household wealth at the end of 2014 is estimated to have reached £9.1 trillion, an increase of £1.5 trillion (or 19%) in the past year, according to latest research from Lloyds Bank Private Banking.
Over the past 10 years wealth held by households has grown by £3.9 trillion (or 75%) from £5.2 trillion in 2004.
The increase of £3.9 trillion in household wealth is equivalent to £126,572 per household since 2004. The value of household wealth has grown at a faster rate than the overall increase in consumer prices, with the retail price index up by 31% over the past 10 years, and has significantly outpaced growth in gross household disposable income, which rose by 42%.
Lloyds Bank Private Banking said a combination of growth in average property prices and the value of financial assets during 2014 drove the largest annual increase since records began in 2001 in total household wealth of £1.5 trillion. With average house prices rising by 9% during the year, housing wealth contributed an estimated £452 billion to the overall increase in wealth; accounting for approximately one-third of the total rise.
While the total value of financial assets (such as bank and building society deposits, government bonds, shares in companies, life assurance and pensions) held by households has increased by close to £1 trillion (£996 billion). Within this significant driver was a £757 billion rise in the equity held by households in life assurance and pension fund reserves. Most of this increase was helped by a 20% rise in UK gilt prices during 2014, particularly in the 25-year and 35-year stocks – the core of pension fund gilt holdings.
Over much of the past decade housing wealth has fallen in importance relative to financial wealth. Housing now accounts for 39% of total wealth compared with 45% in 2004. Conversely, the proportion accounted for by financial assets has risen from 55% to 61%.
68% (or £2.7 trillion) of the rise in household wealth is accounted for by financial assets, which have doubled in value from £2.9 trillion to £5.5 trillion. Life assurance and pension funds make up 59% of households’ total financial assets, and a further 24% is in the form of deposits held with financial institutions.
The increase in housing wealth has been driven by the £1.3 trillion rise in the value of the national private housing stock from £2.3 trillion in 2004 to £3.6 trillion in 2014. This rise, in turn, has been driven by growth in both average house prices and the number of privately owned homes (which grew from 21.0 million in 2004 to 23.2 million in 2014).
While the value of the housing stock has increased substantially, growth in mortgage debt has slowed sharply in the past five years. Between 2004 and 2008 mortgage debt grew at an annual rate of £90 billion, but this rate has slowed to just £12 billion since 2009.
Markus Stadlmann, chief investment officer of Lloyds Bank Private Banking, said: “Since 2004 substantial growth in the value of the housing stock and financial assets has boosted net household wealth by close to £4 trillion.
“A booming housing market up to 2007 coupled with the rising value of households’ financial assets held and a growing number of older households are the key drivers.”
