Household wealth shrinks by £815bn

11/09/2009

The UK's 26.65 million households saw £815 billion wiped off their total wealth in 2008 as the credit crunch and subsequent recession pummelled property values and investments, new figures have revealed.

Research for the BBC by Halifax shows sliding house prices saw private housing equity - the difference between market value and outstanding mortgage commitments - fell by £422 billion last year.

Meanwhile, tumbling stock markets saw net financial wealth, defined as the difference between total assets such as pension funds and outstanding debts on loans and credit cards, fall by £393 billion.

The report was based on data from the Office for National Statistics and the Bank of England.

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

However, with signs of recovery in the property market and share prices up by around 40 per cent since their March low, he said personal wealth could be in a "much healthier position" in 2009.

According to Halifax's House Price Index, average property values rose by 0.8 per cent to £160,973 in August, bringing them back to around the same level they were at in December 2008, when the typical home cost £160,861.

EuroDebt director Kevin Still said: "Major reductions in home equity are a cause for concern for many homeowners who have historically relied on being able to remortgage and release equity to clear unsecured credit. Many are now faced with no refinancing options and growing household debts.

"For many, liquid savings have evaporated leaving people with no 'financial cushion' and a need to deal with their debts.

"EuroDebt has seen a major increase in the number of homeowners starting Debt Management Plans or IVAs with arrears on their mortgage or with priority creditors."

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