| Personal insolvency may rocket in 2008 |
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| Wednesday, 31 October 2007 | |
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Interest rate rises, growing consumer debt and tightening lending practices will cause a major escalation in personal insolvency next year, accounting firm PKF has warned.
The government's personal insolvency figures, due to be released on Friday, are expected to show a further rise in the numbers forced into bankruptcy or applying for an IVA. PKF Partner Philip Long fears that the signs of future hard times for many Britons are already apparent and that 2008 insolvency numbers are likely to rocket. Long says: "We have been helping an increasing number of people who have been using their credit cards to pay their mortgages, which is a mark of extreme desperation given the speed with which the level of debt mounts up. It's an unsustainable practice and a sign that many are standing on the precipice and only relatively small additional costs will push them over the edge.” Steady rise Personal insolvencies in England and Wales peaked at just under 30,000 in the last quarter of 2006 and the first quarter of 2007. However, the likelihood is that the ceiling will be breached in the first quarter of next year. Long anticipates that the numbers will continue to rise steadily throughout the year. He says that it will not be much of a comfort to those facing this position, but that a hard dose of reality in the personal credit market is long overdue. Long calls it “deplorable” that it has taken a meltdown in the US sub-prime mortgage market for lenders to review their loans and credit policies but thinks it is essential that it happens. “It is going to mean short-term pain, but unrealistic lending practices had to stop at some point; hopefully this is it,” he says. Hard lesson Long expects that the tightening of lending criteria will cause the insolvency figures to rise significantly, as those in the worst financial positions won't be able to carry on. He says that it is a very hard lesson for the UK to learn, but that it is essential that it is taken on board that there is a cost for credit. "We have to help the thousands of people in debt. Part of that is removing the stigma of bankruptcy for the current generation. There is life after bankruptcy and people have to view it as the start of rebuilding their lives.” Long accepts that it is a very difficult message to take on board for someone who might have lost their home, but says it is the reality created by over a decade of spending on credit. Related links |
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