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Posted - 08 May 2007 : 09:33:11
Personal insolvency rates at record as debt crisis deepens
A new surge in personal insolvencies to a record high and a leap in the number of people facing repossession of their homes fuelled anxieties yesterday over the plight of Britain’s overextended borrowers.
The number of people going bust climbed to a record 30,075 in the first quarter of 2007, official data revealed.
Analysts said that the trend in insolvencies was slowing. However, they gave warning that borrowers’ distress was set to deepen later this year, as the Bank of England now looks certain to drive interest rates still higher, with the next rise expected as soon as next week.
Baker Tilly, the accountancy and advisory firm, gave warning that the number of personal insolvencies could rise as high as 130,000 by the end of the year.
Sue Maund, a partner, said: “Britons today owe a record £1.3 trillion of debt, the highest amount in Europe, and given the current economic climate this can only be described as precarious.”
Individual insolvencies were up by 1.2 per cent compared with the previous quarter and up by 23.9 per cent compared with a year ago, data from the Department for Trade and Industry’s Insolvency Service revealed.
However, the rise was entirely the result of an increase in individual voluntary arrangements (IVAs), to 13,233 from 12,645 in the fourth quarter, although that was the smallest rise for more than two years. IVAs are widely promoted as a less costly form of debt restructuring than bankruptcy.
The number of bankruptcies declined for the first time since the second quarter of 2006.
Mark Allen, head of IVAs at the accountants Grant Thornton, said: “Banks are now implementing more stringent policies on debt recovery or indeed rejecting those IVA proposals that are deemed too lenient. As a consequence, the rate of growth of IVAs has slowed.
“Additionally, on the back of complaints to the advertising watchdog, the more aggressive examples of IVA advertising are being prevented, and this too may have stunted the growth of IVA numbers.”
A further danger signal came from figures on mortgage possession actions, which rebounded to 33,715 in the first quarter, up more than 10 per cent on the previous quarter after a sharp drop at the end of 2006.
Ed Stansfield, of Capital Economics, said that the rebound suggested that the number of households struggling with their mortgage payments had temporarily stabilised.
He gave warning that the three interest rate rises since last August had yet to take their full effect on the most heavily indebted mortgage holders. “As a result, we would be surprised if the upward trend in claims did not reemerge over the next year or so.”
Vincent Cable, the Liberal Democrats’ treasury spokesman, said: “This increase in personal insolvencies to a staggering quarterly record, alongside the equally dramatic rise in home repossession claims, demonstrates the severity of Britain’s personal debt crisis.
“These figures equate to more than 300 people being declared insolvent every day – a truly astonishing number.”
Source: timesonline.co.uk
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