Summary:
* Confidence in property still on the up despite warnings of a house price slowdown
* Disposable income expected to rise
* Saving expected to increase
* Borrowing expected to decrease as the scare stories hit home
Warnings of a house price crash seem to have fallen on deaf ears as people’s personal experiences tell a different story. According to the study the majority of the population (57 per cent) say that compared to last year, the value of their house has increased. Of these, 12 per cent have seen their house value shoot up.
Breaking it down into regions, Yorks & Humber and Scotland have seen most people enjoy rising house values over the last year. The West Midlands has seen the fewest.
Q: And thinking about the value of your home, how would you say that it has changed compared to this time last year? Net scores (% A lot/a little higher minus % A lot/a little lower)
Yorks & Humber
74%
Wales
46%
Scotland
66%
South West
39%
East Midlands
66%
London
39%
North West
56%
South East
38%
East
49%
West Midlands
28%
North East
46%
GB average
50%
The nation expects house prices to continue to rise. 43 per cent of GB adults think that they will see the same trend again over the next 12 months,4 and only 9 per cent think that the value of their property will go down.
This confidence in property is part of the reason why Pru’s monthly ‘Mood of the Nation’ Index is looking up. At the end of July 2005, the index stands at 129.8, compared to 122.3 at the end of last year. To put this into context, over the ten years it has been going, it has reached an all-time high of 172.4 in 1997 around the election, and lows of 98 around the time of September 11th in 2001 and 90.6 around the Iraq war in 2003.6 It is likely that the recent terror attacks will affect the index in the future. But for now, people remain relatively optimistic. Why?
Answer — higher levels of disposable income, higher saving and lower borrowing
The vast majority of people have seen their disposable income rise or stay the same over the last year (70 per cent). And looking ahead, 85 per cent think that this will continue next year.
Looking forward, savings too, are on the up. Far more people think the value of their savings will increase over the next year (26 per cent), than fall (10 per cent). Given the savings gap, this is good news. More people said that their savings had gone down (21 per cent) compared to this time last year while 19 per cent said that it was higher than at this time last year.
People’s attitude to borrowing, also has at last started to change. Rather than burying their heads in the sand about the dangers of excess debt, they are very slowly beginning to decrease their levels of borrowing. Over the next 12 months, more people (18 per cent) think they will be able to reduce their borrowing, than those who think they will borrow more (just 8 per cent).
Surprisingly, it is the 25-34 year-olds who plan to cut back on their borrowing the most, with 27 per cent saying their borrowing will decrease. Perhaps not surprisingly, London is the place where the most people expect to continue borrowing (16 per cent), compared to the East, where 23 per cent think they can reduce their debts.
Angus Maciver, Director of Brand and Insight, Prudential UK, said: "The news that people are starting to save more and borrow less is good. It seems that at last the message about the need to plug the worrying savings gap may be sinking in. As a nation, we still have a long way to go to address this issue, but the fact that people are starting to think about it and get their finances under control, is a good start.
"What is interesting is that people still have an amazing amount of confidence in the value of their property. People think that by ‘banking on bricks’ they cannot go wrong and many have had experiences over the last year that serve to reinforce this. It’s here that people should be cautious.
"Although it is true that property has seen some extremely good times over the last decade or so, it is also true that people should be very wary about putting all their eggs into one basket. Thinking ahead, a good retirement plan should include lots of elements, of which property can be one. But if people are relying on their house price continuing to rise to fund their pension, then they may be in for a shock."
