Household wealth hit a record high last year thanks to historically low interest rates and tax breaks handed to property buyers.
The value of Britons’ net worth rose to £11.2 trillion, up 8.4 per cent on 2019 and the highest rate of growth since the financial crisis of 2008, according to the Office for National Statistics.
The rapidly rising value of land and property contributed to 40 per cent of the rise.
The reduction in stamp duty, which inflated house prices, was the “likely” source of the jump in land and property prices, the ONS said.
The housing market has been performing strongly since the summer of last year, when, in an attempt to shore up the economy, Rishi Sunak announced that the first £500,000 of a property purchase would be tax-free. The relief was extended until the end of June this year, when it was halved to £250,000. In October the threshold returned to £125,000.
The tax relief buoyed up the property market. The price of an average home rose by 10 per cent to £252,687 last month and is up 15 per cent since the coronavirus first struck in March last year, according to a survey by Nationwide Building Society this week.
Insurance funds and gold-plated pension pots accounted for a further 40 per cent of the rise in household wealth. The growth was driven mainly by the fall in long-term bond yields, which inflated the value of defined-benefit pension schemes.
Lockdowns further enhanced household net wealth as many white-collar employees were able to work from home on their full salary and thus preserve their cash. Other workers benefited from government income support schemes, such as the furlough programme.
Bank savings rose by record levels during the pandemic, with further surplus cash channelled into financial assets. “Currency and deposits” contributed 21.5 per cent of the growth in households’ net worth as the savings ratio hit an all-time high, the ONS said.
The increase in household net wealth is in marked contrast with previous economic crises.
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Household wealth rises to a record high