Relationship between savings and property prices revealed
Whilst a close relationship exists between the levels of savings balances and residential property prices in the UK, there are exceptions, according to research from Halifax.
The London boroughs of Hackney, Newham, Lewisham and Southwark are all amongst the five areas in the UK with the lowest average savings balances, all under £4,000, but each has an average house price that is significantly above the national average.
Indeed house prices in Hackney, Southwark and Lewisham are also higher than the average for London as a whole, the research reveals.
Researchers found that there are many areas where there is a strong relationship between high savings balances and high house prices. Five of the ten local districts with the largest average savings balances also feature in the ten areas with the highest average house prices in the country.
Residents of Kensington and Chelsea are not only some of the biggest savers, fourth highest average in the UK with an average customer balance of £9,6541, but houses in the Royal Borough also command the highest average property price, at £634,637, some 262% above the UK average of £175,483.
The other four areas that feature in both the top ten rankings for highest average savings balance and average house prices are Mole Valley with savings balance of £9,768 and average house price of £379,396, Chiltern with £9,567 and £413,802, Elmbridge with £9,217 and £409,606, and Richmond-upon-Thames with savings of £9,116 and average house price of £428,466.
Residents in South Buckinghamshire and St. Albans are also amongst the ten areas with the highest savings balances in the country and have an average house price that is more than twice the national average.
Christchurch in Dorset and Derbyshire Dales are also amongst the top ten areas for savings balances and both have average house prices that are above both the national and regional averages.
Shetland Islands is the only area in the national top ten for savings where the average house price is below the national and regional average at -25% and -7% respectively.
But low savings do not necessarily mean low house prices, the research also found. The lowest average savings balances are held by those living in the London borough of Hackney at £3,224. However, the average house price in Hackney at 305,136 is 74% above the UK average and 6% above the Greater London average.
Another London borough, Southwark, is also one of the ten areas with the lowest average savings balances, but has an average house price that is 86% above the UK average and 13% higher than the London average.
Only two of the ten areas in the country with the lowest average savings balances are also amongst the ten areas with the lowest average house prices. Hull has average savings of £4,133 and an average house price of £100,550 and North Lanarkshire with average savings of £4,225 and average house price of £104,148.
There are, however, three areas that are in the bottom ten for average savings balances and have below national average house prices, Manchester, Glasgow and Knowsley. All three areas also have house prices that are below their regional averages. Overall, seven of the ten areas with the lowest savings balances in the country also have house prices that are below the regional average.
‘The relationship between savings balances and house prices is typically a strong one although there are some exceptions, mainly in London. Areas with high house prices tend to be populated by people with high savings balances. This is largely what you would expect given that areas with the highest savings and house prices tend to be ones where earnings are also relatively high,’ said Nitesh Patel, economist at the Halifax.
‘Several areas in London, however, have amongst the lowest savings in the country but house prices are above the national average. This could be because housing costs take up a relatively high proportion of income leaving limited scope for savings,’ explained Patel.
‘Savings play an increasingly important part in the housing market, helping to provide the necessary funds to put down as a deposit when buying a home. Savings also play a significant role when planning for your financial future, so it is important to establish good savings habits as early as possible,’ added Patel.