UK households saw their income drop by an average of £31,000 last year because of the credit crunch and recession, new figures reveal.

A study for the BBC found that falling house prices were responsible for a £422 billion decrease in the value of the UK’s housing wealth, while falling share prices reduced other financial wealth by £393 billion.

According to calculations by the Halifax bank, this was the first such drop in household wealth since 2001. The bank worked out that the accumulated wealth of the UK’s 26,652,000 homes fell by a total of £815 billion  in the course of last year as the economic downturn undermined house prices and stock market investments - an overall drop of 12%.

“It is a huge drop to happen in one year,” said Martin Ellis, chief economist at the Halifax.

“But we have had the biggest house price fall yet seen in just one year, combined with a fall in equity prices,” he added.

The figures were based on official data from the Office for National Statistics (ONS) and the Bank of England.

The majority of household wealth is tied up in people’s homes and pension schemes. House prices dropped by 9% last year according to estimates of the Communities and Local Government Department (DCLG).

At the same time, the value of shares in the FTS All-share index fell by 32%, a drop of £579bn, driving down the value of pension schemes.

This meant that the equity in people’s homes - the surplus of their market wealth over the value of the existing mortgages - fell by 15%, or £422 billion, to £2,468 billion, whilst net financial wealth dropped by 10%, or £393 billion, to £3,453 billion.

Total household wealth therefore dropped from £6,736 billion to £5,921 billion.

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