Page last updated at 23:16 GMT, Thursday, 10 September 2009 00:16 UK

Household wealth 'falls by 31k'

Piggy bank, notes and credit cards
Household wealth shrank dramatically in 2008

UK households saw their wealth drop by an average of almost £31,000 each last year, because of the credit crunch and the recession, research shows.

Figures calculated for the BBC show that falling house prices knocked £422bn off the value of the nation's housing wealth.

And falling share prices dented other financial wealth to the tune of £393bn.

It was the first time such a fall has happened since 2001, according to calculations by the Halifax bank.

The figures were based on official data from the Office for National Statistics (ONS) and the Bank of England.

The Halifax worked out that, overall, the accumulated wealth of the UK's 26,652,000 homes fell by £815bn in the course of last year as the gathering economic and financial crisis undermined house prices and stock market investments.

That was a drop of 12%.

It is a huge drop to happen in one year
Martin Ellis, chief economist, Halifax bank

"It is a huge drop to happen in one year," said Martin Ellis, chief economist at the Halifax.

"But we have had the biggest house price fall yet seen in just one year, combined with a fall in equity prices," he added.

Wealth eroded

The paper wealth of most people is tied up in their homes and their pension funds, both employer schemes and private ones.

House prices dropped by 9% last year, using the estimates of the Communities and Local Government Department (DCLG).

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And the value of shares in the FTSE All-share index fell by 32%, a drop of £579bn, driving down pension scheme values.

The effect was that in the course of 2008 people's equity in their homes - the surplus of their market wealth over the value of the existing mortgages - fell by 15%, or £422bn, to £2,468bn.

Meanwhile net financial wealth - the total of all financial assets minus the stock of outstanding debts like loans and credit cards - dropped by £393bn, down 10% to £3,453bn.

The result was that household wealth dropped from £6,736bn to £5,921bn.

If the Halifax had used its own 17% estimate of last year's average house price fall, then the overall drop in wealth would have been much bigger at £1,104bn, a fall of 16%.

Pension scheme closures

So far this year, total household wealth has revived.

You could see a much healthier position with regards to personal wealth in 2009
Martin Ellis, Halifax

Since the start of 2009 house prices, on some measures, have started to go up again.

Meanwhile share prices have rocketed up since the start of March, with the 100 share index rising above the 5,000 level this week.

That represented an increase of more than 40% in just over six months, taking the UK stock market back to the level seen in October last year when the banking crisis was reaching an unprecedented pitch.

"You could see a much healthier position with regards to personal wealth in 2009," Martin Ellis said.

But that will not be true for everyone.

Apart from people who have lost their jobs, or been forced to take pay cuts or pay freezes, increasing numbers of people are being moved by their employers out of their traditional final-salary pension schemes into more volatile defined contribution versions.

The guarantees that employers used to provide are disappearing, with ballooning pension scheme deficits helping to prompt more companies into closing their schemes to their existing members.

Even if the finances of these pension schemes were to improve permanently, there is little chance they would be reopened or that staff would be offered the retirement benefits that are now being taken away.



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