High interest rates in the United Kingdom have led to a “record” decline in British household wealth since World War II, but it may give a boost to those looking to buy their first home, according to a study published Monday.
Rising interest rates amid inflation since the post-Covid recovery “decreased household wealth across Britain by £2.1 billion over the past year,” according to the study by the Resolution think tank.
The center stated that Britain benefited from an “unprecedented wealth boom in recent decades,” while the total wealth of British households increased “from 300% of national income in the 1980s to 840%, or 17,500 billion in 2021,” according to Agence France-Presse.
“The British central bank’s rapid rise in interest rates since the end of 2021 has led to an increase in mortgage rates and caused a decline in housing prices, as well as the prices of British treasury bonds and companies,” said the Center, which specializes in anti-poverty policies.
Falling government bond prices have reduced the book value of pension fund assets, which are “traditionally the largest source of household wealth in Britain”, says the study, which was conducted in partnership with Abrdn Financial Fairness Trust.
The result: British household wealth now represents only 650% of British national income in early 2023, the largest decline since the end of World War II, according to the study.
Faced with inflation holding steady in May at 8.7% over one year and continuing to exceed expectations, the BoE raised interest rates in June for the 13th consecutive time to 5%, and markets expect them to peak at 6.5% in March.
This decline in British household wealth may reduce the “generational inequality” that has increased over the past 40 years, as older generations benefit from the property boom while younger ones find themselves deprived of property ownership.
The continued increase in interest rates increases the pressure on the financial resources of families who have a home loan, because they usually come with variable or fixed rates for only a few years.
On the contrary, these higher rates may lead to lower real estate prices and allow retirees to have a better standard of living by increasing the returns of pension funds, according to the study.
