UK Insolvencies on the Rise
Financial experts’ predictions of a significant rise in the number of declared insolvencies in England and Wales in the first quarter of this year, have been confirmed by figures recently released from the UK Insolvency Service.
Over the first three months of 2008, individual insolvencies were calculated at 25,264, a rise of 1.7% up from the previous quarter period.
The figures revealed that there were a total of 15,651 bankruptcies out of the overall 25,264 individual insolvencies declared, with bankruptcy declarations from the self-employed sector falling to 11% in 2007 compared to 61% in 1995.
Individual Voluntary Agreements (IVAs) reached a total of 9,614, down 22% in comparison to the same quarter in 2007, perhaps surprisingly given the added pressure on financial services created by the ongoing credit crunch.
The IVAs, which are basically arrangements made with creditors aimed at reducing the total amount of debt, are considered to carry less stigma than bankruptcy. The IVA industry is reported to be pushing through policy to further publicise and improve the service, and expects this effort to be reflected in the figures for the next quarter.
Mark Sands, KPMG director of personal insolvency, commenting on the current insolvency figures, commented that data from his organisation revealed that the average amount of debt owed on an IVA during the first quarter was £48,200, with over 500 people owing a minimum of £100,000.
Meanwhile Nick O’Reilly, newly appointed President of R3, the Insolvency trade body, warned that official statistics hid the full extent of the UK debt problem.
He commented: “The true number of those unable to pay their debts could be three times higher due to those in Debt Management Programmes (DMPs) not being included.”
Also remarking on the parlous state of indebtedness now existing in the UK, Anna Sofat, founder and Director of Addidi Wealth, a financial management service aimed at women and administered by women, said that Britain has “a lifestyle of debt”, and warned that soon many consumers “will pay the price for it”.
Ms Sofat believes that one of the main reasons why people find it increasingly difficult to save money is because mortgage rates are now higher than they have been for some time.
She explained that recently large numbers of consumers had been coming out of remortgages and fixed rate mortgages, and that towards the end of last year two to three year fixed-rates experienced a significant rise in interest charges.
Ms Sofat also commented on the fact that within the last two years lenders were offering money at “silly rates”, pointing out that personal loans were being offered at cheaper rates than a mortgage, homeowner loan or unsecured loan.
The overall gloomy picture of a debt-ridden nation was further borne out by a Citizens’ Advice Bureau report released recently, which stated that enquiries regarding mortgage arrears rose by 35% in the first two months of this year in comparison with the same period during 2007.
The impact of the credit crunch on property investment also continues to be keenly felt with The Nationwide company publishing figures revealing a fall of about £2,000 on the value of the average UK house, now standing at a figure of £178,555.
The cumulative result of this latest information is to generate new fears of negative equity forcing a likelihood of more house repossession, with little reassurance coming from the chilling and salutary tale of the Scottish £10million lottery winner, John McGuinness, who, after running up debts totalling £2.1million to the Royal Bank of Scotland (RBS), was forced out his £750,000 mansion on April 31st of this year.
Concern about money now also seems to be affecting the nation’s children, with a recent survey by Abbey Banking of 300 children between the ages of 11-15, revealing that the fear of “being poor and falling into debt” was their second greatest concern after worries about examinations.