Meet Mr Average: worth £82,400 and a hostage to house prices

New report reveals that the rising fortunes of Britons aren't built on solid foundations. Jason Nissé reports
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The Independent Online

The average Briton is getting wealthier. But, like the characters in the television comedy series My Family, he or she is short of cash and increasingly reliant on the value of his or her home to shore up creaking finances. In addition, there is a growing underclass that does not own property and is getting left behind.

These are the conclusions of an extensive study into the British consumer by computer giant IBM, published tomorrow. It paints a picture of a large group of people who are increasingly vulnerable to a property price crash.

The IBM study, which was based on data from income tax returns collated by the Inland Revenue, concludes that the average Briton has a net wealth of £82,400. This includes the value of people's homes and their cash and investments, but not their pensions.

The figure represents an increase of 11 per cent on the previous survey, two years ago, and is almost 30 per cent higher than it was four years ago.

However, IBM discovered that the entire increase is down to higher house prices and that the average amount of "liquid wealth", cash or investments, has actually fallen and only really represents a quarter of people's net worth.

The rise in house prices is showing no sign of abating. Figures released by the Halifax, the UK's largest mortgage lender, show that prices increased by 2.2 per cent during March, making an annual increase of 18.5 per cent and putting the average cost of a home in Britain at £151,467, the first time it has ever exceeded the £150,000 barrier.

The IBM study found that people were increasingly unlocking the wealth tied up in their homes to pay for other big commitments in their life - such as children's education, long-term care for the elderly, retirement income or just to clear large credit-card bills.

"Property wealth is being used to support a lot of people's financial needs," said Tim Blaxall, a consultant at IBM who compiled the report. "This is a major issue for the financial industry, which is starting to come to terms with how it services these needs."

The issues was further highlighted last week when the Bank of England released figures showing that "equity withdrawal", the use of the value of your house to take on extra loans, increased by a fifth in the last three months of last year. It stood at £16.2bn at the end of 2003, compared with £13.8bn at the end of October.

The Bank has been voicing concerns about the increased amount of borrowing and its Monetary Policy Committee may raise interest rates this week in the hope of slowing it down.

Mr Blaxall warned that the figures show there is a large group of people who are being excluded from all this. It seems that Britons with a net worth of less than £50,000, which covers more than half of the population, many of whom do not own their own homes, are seeing their wealth grow much more slowly than the propertied classes. He sees these people getting increasingly into debt, and because this debt is largely unsecured, they have to pay higher rates.

At the top end, though, it seems that people have a better mix of investments. Those with a net wealth of more than £500,000 are typically less dependent on property and may have more than half their wealth in investments.

Another problem is the difficulty that first-time buyers face in getting on the property ladder that would take them to this increased wealth. Figures from Britain's mortgage lenders show that the average person is now 34 years old before he or she gets to buy a first home.

Mr Blaxall said that it appeared many people were taking out extra loans on their own properties so that they could give money to their children for a deposit on their first home purchase.

The conclusions of the report show an asset-rich, cash-poor society that is increasingly having to work longer because people do not have the available income for retirement despite their apparent wealth.

It is a society where a property crash could cause massive problems for large swathes of the population.