UK wealth / income ratio heading for record annual fall
Simon Ward
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The ratio of household wealth to income is likely to have fallen by over 20% during 2008, reaching its lowest level for 10 years.
Net wealth – defined here as the value of houses and financial assets owned minus mortgage and other debt – amounted to £6.7 trillion at the end of 2007, or 7.6 times disposable income. Gross wealth was £8.2 trillion, of which housing contributed £4.1 trillion and direct and indirect equity holdings an estimated £1.8 trillion, while debt stood at £1.5 trillion.
An average of the Halifax and Nationwide house price indices fell by 15% between December 2007 and November 2008. Equity prices – as measured by the FT all-share index – were 35% lower at the end of November than at the close of 2007. These declines imply a loss of wealth of about £1.3 trillion.
Allowing for further growth in debt and a rise in income, the net wealth / income ratio is estimated to have fallen from 7.6 to 5.9 – a 22% decline. The largest previous annual drop was 21% in 1974.
The chart shows the ratio of net wealth to income along with gross wealth and debt separately. The recent loss is much greater than in the early 2000s, when housing resilience offset large equity price falls. The net wealth to income ratio hit consecutive record levels over 2004-07 but this year’s plunge has wiped out the entire rise since 2002.
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