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PERSONAL INSOLVENCY BACK AT POST-RECESSION LEVELS

Published on:July 29, 2014Author:The Debt Advisor

Figures published today by the Insolvency Service show that personal insolvencies in England and Wales increased in the second quarter to 27,029, their highest rate since the third quarter of 2012 and 5.1% higher than the same period 12 months ago. This was mainly due to a 20.3% jump in the number of Individual Voluntary Arrangements (IVAs). However, company liquidations in the second quarter of this year were down 6.9% on the previous quarter and also down 15.1% on the same quarter in 2013. This represents their lowest quarterly total since the start of 2008.

Bev Budsworth, managing director of The Debt Advisor commented: “Today’s figures show that, aside from all the talk of economic recovery, it’s clear that people are really struggling with a rate of personal insolvency not seen since summer 2012 – a time when we were just emerging from a double-dip recession.”

Under the radar

According to ONS figures, the UK economy has returned to the level of growth we all enjoyed at its peak in 2008. However, inflation jumped unexpectedly in June to 1.9% putting more pressure on the Bank of England to raise interest rates.

Bev continued: “Many households are under real financial pressure at the moment, which is echoed in today’s figures. The underlying factors to today’s figures shows that it’s still a real mixed bag out there with continually depressed wages not helped by rising inflation. According to the Money Advice Service, nearly nine million adults have too much debt and only escaped today’s figures by just managing to make their financial commitments.

“I believe that there are millions of adults in the UK who are just scraping by; those people who are flying under the radar and are not yet a statistic because they are just about making their debt repayments each month.

“Although the economy is in recovery for some, for hundreds of thousands of people, their finances are on a knife edge, held in check only by a sustained low interest rate. For me, the acid test will be when the Bank of England starts to raise its base rate and people’s mortgage payments follow suit, plunging over a million households in ‘debt peril’, compared to the current 600,000 – according to the Resolution Foundation.”

The term debt peril is used to describe where more than half and individual’s post-tax income goes toward debt repayments.

Treating Customers Fairly

“We are also beginning to see an increasing amount of people coming under more pressure from their mortgage lenders. Banks are keen to migrate people over to repayment mortgages from interest only schemes to lessen the financial risk placed on themselves.

“Unfortunately, by doing this, people’s finances are simply falling over – already stretched, they are reaching breaking point with the additional cost of a repayment mortgage.

“While banks do need to reduce their risk, it seems the ‘treating customers fairly’ message is just not getting through for some lenders who don’t seem to care that customers have other debt commitments which they won’t be able to meet if their mortgage payments treble when they are converted from an interest only to a repayment mortgage – a problem that can only get worse if rates begin to rise.

‘Cautious’ spending

“Like individuals, businesses are still finding it tough. A five-year period of minimal economic growth has taken toll on weaker firms who are still operating on a shoestring with a reluctance to spend.

“Even though today’s figures painted a slightly better picture for UK plc, we are seeing businesses going to the wall because of failed deals and broken promises as customers continue to keep a lid on their spending. Unfortunately, the business’ reaction often includes wage freezes and zero hours contracts which only go further to exacerbate the situation by placing individuals under more financial uncertainty.”