Research from Lloyds has revealed that during 2016, total household wealth in the UK reached an estimated £10.5 trillion. This is an increase of £892 billion (or 9%) from £9.6 trillion in 2015.
The past decade has seen wealth held by households increase by £3.9 trillion (59%) from £6.6 trillion in 2006.
The increase of £3.9 trillion in household wealth is equivalent to £143,059 per household since 2006. This means the value of household wealth has grown faster (59%) than both the Retail Price Index (up 33%) and gross household disposable income (up 37%) in the past decade.
Both housing and financial assets grow strongly in the past year
Average house prices rose by 4.9% during the year and an additional 183,000 homes were added to the stock of private properties (both owner occupied and those in the private rental sector). This resulted in housing wealth contributing an estimated £431 billion to the overall increase in wealth - accounting for 48% of the total rise.
Having fallen in importance relative to financial wealth over much of the past 10 years, the contribution of housing wealth in the household portfolio mix has edged up in the past year from 41% to 42% in 2016. The proportion accounted for by financial assets is 58%.
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 increased by a similar amount - £461 billion or 8% - in 2016. In previous years, the value of financial wealth has been driven by growth in the value of equities held by households in life assurance and pension fund reserves, which in 2016 grew by just 10%.
Sarah Deaves, Private Banking Director at Lloyds Bank, commented: "For many people, their overall wealth is locked up in assets that they hold for the longer term like their homes, their pensions, ISAs and investments.
With rising house and equity prices, net worth has increased substantially in the past decade, growing by £143,000 per household on average. Increasing levels of wealth are clearly positive for households, but with recent changes, like pensions freedoms, it also highlights the increasing importance of proper financial planning, especially as people approach and move into retirement.”
A decade of wealth accumulation generated by rise in value of financial assets
Over half (57% or £2.2 trillion) of the £3.9 trillion rise in household wealth since 2006 is accounted for by financial assets, which have grown by one-and-a half times in value from £3.9 trillion to £6.1trillion. Life assurance and pension funds make up over three-quarters (77%) of households’ total financial assets, and a further 21% is in the form of deposits held with financial institutions.
During this period the market value of pensions has grown by £1.5 trillion (or 65%) to £4.0 trillion whilst the value of equities and investment funds has grown by £31.3 billion (5%) to £687 billion.
The increase in housing wealth has been driven by the £1.7 trillion rise in the value of the national private housing stock from £2.6 trillion in 2006 to £4.4 trillion in 2016. This rise, in turn, has been driven by growth in both average house prices – 51% higher than in 2006 - and the number of privately owned homes - which grew by 9% from 21.5 million in 2006 to 23.4 million in 2016.
While the value of the housing stock has increased substantially, growth in mortgage debt has slowed sharply since 2008. Mortgage debt in 2006 and 2007 grew at an average annual rate of £106 billion (11%), but since then the annual rate has declined to just £16 billion (1%).