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Wealth in the UK: We’re richer than you think

Wealth in the UK has long been linked to property riches

The financial crisis has hit us with big numbers as remorselessly as Professor Brian Cox enumerating the scale of space, time, and his pay packet (as well as how many hours he’s on TV, which researchers now estimate is “all of them”).

When failed bank Northern Rock was nationalised back in 2008, £25 billion still sounded like a lot of money.

But as we’ve come to hear about the hundreds of billions required to underwrite the UK banking system, or the trillion Euro ‘big bazooka’ said to be required to see off Europe’s demons, a billion now seems a mere bagatelle. (My first reaction on hearing that JP Morgan was down $2 billion on one trade was to shrug).

There is however one class of ginormous economic number that can still send shivers down our spines, and that’s anything concerning debt.

Few people seemed to care less about either consumer or sovereign debt a few years ago.

Now you can’t get through an edition of Question Time without rival politicians trying to bludgeon each others’ arguments through sheer weight of zeroes.

Balancing the books

It’s hard not to quake when you hear that UK citizens owe so many billions on their credit cards, so many hundreds of billions on their mortgages, and so many unfunded trillions to the pensioners of 2030.

I’d be the first person to agree that at the national level we’ve over-borrowed and over-spent, as well as encouraged the plastic-wielding proletariat to do the same.

However we rarely hear about the other side of the balance sheet – the assets that we’ve also accumulated during our orgy of spending and borrowing.

Yet those assets make a big difference.

  • If you were on a blind date and your opposite number admitted to being £500,000 in debt, you’d be legging it of the restaurant faster than you can say, “Let’s pay with cash”.
  • If your date clarified that their £500,000 debt was a mortgage on a £1 million country home, the footwork might be more of the under-the-table variety.

Same thing with the balance sheet of UK households.

Yes we’ve increased mortgage debt, but house prices have risen far faster, which means total housing wealth has raced ahead, as have our savings and other financial assets.

Wealth in the UK

So how much wealth have UK citizens managed to accumulate, despite two bear markets in a decade and a banking meltdown?

A hell of a lot, according to research by Lloyds TSB Private Banking – by well over £6 trillion, in fact.

Using data from government bodies1 and its own estimates, the bank’s number crunchers calculate that net household wealth in the UK rose from £4.3 trillion in 2001 to £6.6 trillion in 2011.

That’s a 55% rise in the past decade, handily beating inflation over that period (the retail price index rose by 38%) and also faster than the growth in gross household disposable income (see below).

The bad news however for anyone who believes house prices went a bit silly in the noughties (*whistles*) is that the house price rises did much of the heavy lifting.

Housing wealth in the UK now accounts for 40% of total household wealth, up from 36% in 2001. Housing wealth rose by 73% over the past ten years, compared to a rise of 45% for financial assets.

Growth in UK household wealth: 2001 to 2011

Here’s a table that shows snapshots of the balance statement of loadsamoney Britain at various points from 2001 to 2011:

All figures in £ billions

2001 2007 2010 2011
Value of Residential Properties 2,116 4,077 4,037 3,891
Less Mortgage Loans 591 1,187 1,240 1,246
Net Housing Equity 1,525 2,890 2,797 2,644
Total Household Financial Assets 2,880 3,953 4,205 4,177
Less Consumer Credit Loans Outstanding 150 222 213 207
Net Financial Wealth 2,730 3,731 3,992 3,971
Net Household Wealth 4,255 6,621 6,789 6,615

Source: Office for National Statistics, CLG and Lloyds TSB estimates

Over a trillion in mortgages is certainly a scary-sounding number – enough to make anyone splutter on their cornflakes.

But net those off from total housing wealth of £3.89 trillion, and Englishmen (and women, and Scots, and the Welsh) are still £2.6 trillion in the black when it comes to their castles.

As well as house price inflation, the £1.8 trillion increase in housing wealth is due to there being a greater number of privately owned homes now than in 2001.

According to Lloyds, the total private housing stock rose from 20.1 million in 2001 to 22.4 million in 2011.

Adding 2.3 million extra houses in a decade seems a far faster clip than the statistics I’ve seen for the annual output of housebuilders, which peaked at around 210,000 homes a year in 2008 and plummeted to 150,000 by 2010.

I’m guessing that the difference is made up by the transfer of social housing to the private sector through the Right to Buy scheme, which you could argue is a bit of an accounting trick that mildly juices up this aspect of the wealth growth.

A nation of savers

Turning to wealth held in financial assets, here things look more robust than you might expect, too.

UK households had very nearly £4 trillion in savings accounts, investments, pensions, life assurance schemes and National Savings and the like by 2011 – nicely up from less than £3 trillion in 2001 and higher than the pre-crisis peak, though down a little on 2010.

The biggest driver according to Lloyds TSB was the £718 billion rise in the value of equity held by households in life assurance and pension fund reserves, though cash deposits also doubled to £549 billion.

Imagine how we’d do with proper interest rates and a happier stock market.

It’s worth taking note of the relatively small amount of total consumer loans outstanding. Much of the big non-mortgage debt figures you’ll see bandied about refer to credit card balances that actually get paid off every month; the amount being hit for extortionate interest is far smaller.

Believe it or not, in aggregate UK households are loaded.

Zero tolerance

I stress again I haven’t been bunged £100 and a dodgy dossier by the government to claim all is rosy. I got religion about debt when most of today’s chattering classes were still figuring out ways to get self-cert mortgages on their second homes.

As a nation we’re too indebted, in my view, and we need to work it off. UK households will need as much strength as they can muster as we strive to bring the deficit under control in the face of stagnant wages, higher prices, state pension commitments that are yet to be curbed, and more.

And even on the household level, things aren’t all rosy.

For example, the total value of British households’ housing assets has risen with the greater value of the mortgages secured against them, but we’re still more indebted overall.

I calculate the loan-to-value to have risen from 28% in 2001 to 32% in 2011.

And house prices can go down, too, just as surely as share prices, albeit it much more slowly. You can see it in the £186 billion decline in the value of residential property since 2007, with almost 4% getting knocked off in the last full year alone. A few more years of that and the figures wouldn’t look so good.

In contrast, financial wealth fell by just 1% in 2011 – a decline that the bank says was mainly driven by a £65 billion fall in the value of shares and other equity assets held by households. Chalk up another notch for diversification.

Finally, all the talk about income stagnation had me worried that disposable income would be the Achilles Heel in these figures.

However gross household disposable incomes have held up pretty well, rising 43% over the decade:

In £ billions

2001 2007 2010 2011
Gross Household Disposable Income 700 882 979 1,006

Source: Office for National Statistics, CLG and Lloyds TSB estimates

The bank didn’t give any more detail on what comprises ‘gross household disposable income’, so I went to the ONS website directly to find out what had driven this growth.

Perusing the various surveys reveals strong growth in wages until 2007, then lower taxes and other benefits as well as lower mortgage rates helping to keep household income growth positive in the years that followed – although barely positive in real terms over the last couple of years.

Who wants to be a trillionaire?

Asset values will always fluctuate. The bigger limitation of these sorts of snapshots is that they don’t tell you anything about who has the assets, and who has the debts.

I think it’s pretty safe to assume that 99% of the population is paying off more mortgages than the infamous 1%. The latter has a disproportionate share of the cash, shares, and mortgage-free country houses. Meanwhile, millions of households have no savings to speak of at all.

What you feel about that isn’t just a matter of politics or even morals. It means that the system as a whole is less stable than this overview suggests, as the indebted households are more vulnerable to economic shocks.

That said, the positive takeaway is that whenever you hear a big doomsday number being expressed, it’s important to think about what’s sitting on the other side of the balance sheet before you run to the hills with your gold, baked beans, and a shotgun.

There is much more wealth in the UK than the gloomier headlines would have it.

  1. Data comes from the Communities and Local Government (CLG) department for UK house prices, private dwelling completions and stock of private properties. The data for financial assets and consumer credit is from the Office for National Statistics (ONS). []

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{ 9 comments… add one }
  • 1 ermine May 29, 2012, 12:22 pm

    The headline figure is misleading as a mark of people’s overall experience because of the massive concentration of wealth in a few people’s hands. People’s overall experience is what will cause the social unrest you were worried about last post and which Monevator Baked Beans, Gold and Ammo Trust is hedging 🙁

    53% of the wealth in the UK is held by 10% of people, leaving 9 out of 10 Britons fighting over the rest.

    Something that brings this home to me is that apparently I am part of the 1% by wealth, though I am not a net worth millionaire by any means. I was never anywhere near the top 1% by income. What the heck have my fellow countrymen been doing with their wealth other than flushing it down the pan? I would expect to be in the same decile of wealth as I am in income.

    So all that lovely lolly you talk about here is in so few hands that it isn’t making most Britons feel that much better. It is the dischuffed 99% which make the gold, beans and shotgun necessary, and they haven’t got their hands on the wedge…

  • 2 Neverland May 29, 2012, 12:49 pm

    I don’t find this very comforting

    1) The UK private sector balance sheet looks very like the Irish or American private sector balance sheet must have looked in 2006 – about 2/3 of it is notional “housing” wealth

    IMHO this is just pumped up by 300 year low interest rates

    (although I’m not really suggesting house prices will put in an Irish style performance)

    2) Actually about half of the wealth in the UK is owned by 10% of the population (source: http://eprints.lse.ac.uk/28344/1/CASEreport60.pdf)

    Which to my mind makes us look more like a bananna republic than a proper democracy

    Interestingly these proportions are nearly idenitical to wealth distributions in Italy, Spain and Greece

    When their economies got in trouble did their wealthy elites put in money to bail the country out and put it back on track or did they move their money off-shore?

  • 3 Guy May 29, 2012, 3:39 pm

    I don’t know if you can do this but what would the net housing assets look like if house prices fell back in line with the historic ratio of house prices to income? This might be an overly simplistic look but it’d be interesting to see – a lot of our wealth is tied up in housing and, as you say, prices can go down as well as up!

    Best regards,


  • 4 Neverland May 29, 2012, 4:23 pm

    @ George

    the Economist’s calculations for what they are worth: http://www.economist.com/node/21551486

    22% overvaluation reduces a £3.9trn to be worth “only” £3.0trn

    …but wait some 40% of house are unmortgaged…

    …so actually £1.8trn of mortgaged property supports £1.2trn of mortgaged property…

    …like I said most British people just aren’t that wealthy

  • 5 Guy May 29, 2012, 4:58 pm

    Thanks, Neverland, not very comforting reading!

  • 6 The Accumulator May 29, 2012, 9:25 pm

    I’m trying to square this with why the media report’s on debt never mention the amount of assets that the UK or anyone else has stashed away.

    I guess it’s because when it comes to servicing debt, it’s income that counts. The bank manager will determine my mortgage in line with my income. Nationally, I suppose the equivalent is the oft-quoted debt-to-GDP ratio.

    And what chance has any creditor got of getting their hands on the nation’s pension assets if we can’t pay up? Naff all.

    So I’m left thinking that we’re left in much the same troublesome position. Our assets can’t be realised to relieve the debt burden, and our income isn’t going anywhere while the debt is still piling up.

  • 7 Salis Grano May 29, 2012, 9:27 pm

    Good article, M. It needs pointing out sometimes that net worth is the really important figure. But the comments are also right to point out the imbalances, though. Not that the UK, with a GINI of 34, is much worse than many others in this respect.

    If we reflect upon Mr & Mrs Byam in the Gainsborough painting, surveying their English estate and knowing that it was all underpinned by slave plantations in Antigua, then we can see how far we’ve come in two centuries, albeit with some recent slippage.

  • 8 The Investor May 29, 2012, 11:04 pm

    @All — Good comments here thanks guys. It’s complicated, which is why it’s such a tough issue. I was at pains to point out in the article that I am not saying all is rosy (this even-handedness is becoming a theme — I should write more polarised rants, eh? 😉 ) But every thorn has its rose, as well as vice versa, and currently it’s the debt that makes the headlines. Five years ago it was all “how you too can buy five BTLs by Christmas by juggling five credit cards”.

    I’m not too worried about the mortgages being with the wrong people, however, as I don’t think they are. I think they are *mainly* with people who can pay them, at least if things don’t get any worse or interest rates don’t spike up several percent (and the latter seems very unlikely in the next 2-3 years to me). If they were going to roll over en masse, they’d probably have done so by now?

    While I don’t think the 1% are going to worry about the man from Bradford & Bingley — oops, sorry, they went bust didn’t they — the man from Santander knocking on their door demanding missed payments anytime sooner, I don’t think the poorest have many mortgages either. It’s the middle classes who will continue to feel the pain (and perhaps businesses that serve them). Regions which had a lot of public sector workers on inflated salaries that can’t find equivalent positions in the private sector might be in trouble, but they should be able to sell it at a price as there’s probably still a fair bit of potential equity fat to be cut through in a worst case scenario.

    Interesting considering the effect of further house price declines on loan-to-value, but as I show above for now it’s not quite spiraling out of control, with the increase from 28% to 32%. (And as a near-perma housing bear since 2004, I’d caution you confidently await 25% house price declines at your peril).

    To the same point, our assets don’t have to be realised to relieve our debt burden, IMHO. Rather, we need to avoid racking up too much more debt until incomes have caught back up with reality. Luckily our latterly risk-shy deleveraging banks are doing that for us, mores the pity. Today’s ultra-low fixed rates combined with some decent price falls in the provinces (alas not here in London) could set up some new buyers very nicely.

    I don’t say it’s not a tightrope, but I think it’s there to be walked, as opposed to the void that now gets all the limelight.

    @Salis — Quite. I wonder how certain aspects of the modern financial system will look in another 200 years? History has a habit of making one look like a something-ist. 🙁

  • 9 shtove May 31, 2012, 10:39 pm

    I work in the debt industry, see inside alot of mortgages, talk to creditors & debtors.

    The risk-shy banks are even more shy about recognising past risk. Very common in my work to see low-end mortgages dipping in and out of arrears over five years with the banks forbearing all the way – recapitalising or converting to IO or granting payment holidays. Statistically these mortgages are guaranteed losers, but don’t show up as such in CML figures.

    On the consumer side, we are ignoring how big a problem there is in debt management plans (aka “fiendish plan to keep the limitation period running and avoid declaring losses”). This is the stuff that should simply be written off, or go to court and get charged against assets. But no, it’s booked as performing when token repayments don’t cover even a fraction of the interest charges.

    I doubt the value of assets can truly be reported when the value of bad debt is so laughably under-reported. So I cannot agree that the UK is relatively well off.

    And I suspect that once the rest of the world rumbles the nonsense that passes for regulation in the Square Mile, we might find our revenue cut off.

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