New figures show that we Brits have started to save much harder -- a strong indication that house prices are poised to fall.
According to the latest figures from the Office for National Statistics (ONS), we Brits have begun to save more of our take-home pay. Hurray for the sensible savers!
The Office for National Statistics revealed that the savings ratio (which measures the proportion of our after-tax pay that we save) increased to 6% in the first quarter of this year. Although this is much higher than the 3.7% of our disposable income that we stashed away in 2004, it's still a long way from the long-term average.
Furthermore, to prove that the savers of today don't save anything like as hard as previous generations did, Halifax recently trawled through data for the savings ratio going back to 1963. I looked at this data too and here's what I found:
The savings ratio falls in good times and rises in bad times
Over the past 43 years, the savings ratio has varied enormously, peaking at 12.4% in 1980 (during a period of severe recession), and falling to a record low of 3.7% in 2004 (when the economy and house-price growth were booming). Other notable highs and lows occurred in 1991-93 (another recessionary period, when the savings ratio varied between 10.3% and 11.7%) and from 2002 onwards (when the ratio fell to under 5% and stayed below this level for four years in a row).
Here is the average savings ratio, decade by decade:
Decade | Average savings | Savings ratio |
|---|---|---|
Sixties (1963-69) | 6.3 | 5.5 to 7.2 |
Seventies (1970-79) | 8.2 | 5.0 to 10.9 |
Eighties (1980-89) | 9.1 | 4.9 to 12.4 |
Nineties (1990-99) | 9.1 | 5.3 to 11.7 |
Noughties (2000-2005) | 5.0 | 3.7 to 6.4 |
Overall (1963-2005) | 7.9 | 3.7 to 12.4 |
So, as you can see, since the turn of the century, Britain's efforts at saving all but collapsed, making us the worst savers in over four decades! Still, the good news is that the savings ratio has risen every quarter since mid-2004, almost doubling from 3.1% in Q2 2004 to the 6% recorded in the first three months of this year.
Finally, I'm not known for pulling my punches, so here's one final piece of bad news for homeowners, home-movers and property investors. As I proved in this article, there is a very strong link between the savings ratio and house prices. Put simply, when house prices rise, the savings ratio falls, and when the savings ratio rises, house-price growth slows or prices start to fall. So, brace yourselves, because it looks like the housing-market boom and the good times may be about to end!
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