Problem of personal debt spiralling out of control, say insolvency experts

Problem of personal debt spiralling out of control, say insolvency experts

Insolvency experts warned last night that the problem of personal indebtedness was "spiralling out of control" after official figures showed record numbers of borrowers are losing the battle to keep up their payments on loans, overdrafts and credit cards.

Amid concern that Thursday's increase in interest rates from the Bank of England will be the final straw for many struggling to keep up their payments, the government said a record 26,021 people gave up the fight and became insolvent in the second quarter of this year.

The 66% rise over the past year left insolvencies on course to break through the 100,000 barrier for the first time this year. But there are concerns that the official data only scratches the surface of a nation with debts in excess of £1 trillion.

James Falla, managing director of the consultancy firm Thomas Charles, said: "Official figures for individual insolvencies are just the tip of the iceberg. Our own research indicates 1.1 million adults in Great Britain are in some danger of becoming insolvent. The situation is here to stay and is set to grow."

Separate figures from the Council for Mortgage Lenders also saw a sharp rise in the number of homes repossessed in the first half of the year, which at 8,140 was up from 4,620 in the same period of 2005 and was the highest for five years.

Personal insolvencies in the second quarter were made up of 14,915 bankruptcies and 11,105 individual voluntary arrangements.....continued below

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(IVAs), which allow people to repay a set amount of their debts each month in exchange for having interest payments capped. KPMG said at least 800 of those signing up for IVAs in the three months to June had unsecured debts of £100,000 or more.

Mark Sands, director of personal insolvency at KPMG, said: "Pressure could mount further as consumers face higher energy bills and rising interest rates and we predict a record number of personal insolvencies of 100,000 in 2006, and we think the figures mean someone is entering formal insolvency every minute of the working day."

The financial advisers Grant Thornton said the problem was "spiralling out of control". Mike Gerrard, its head of personal insolvency, said almost 9,000 people a month were losing the fight to remain solvent against 2,500 a month five years ago. He said: "What is of greater concern is that such rises have developed within a relatively benign economic context. Without wanting to be overly gloomy, it is undeniable that recent economic factors such as the rise in unemployment levels, ever increasing utility bills and, since yesterday, higher interest rates will all play a part in tipping yet more people over the edge and adding to the problem." Mr Gerrard said the growth in insolvencies had been fuelled by excessive consumer spending, exacerbated by people "often ignoring its effects and letting interest rates turn a pile of debt into a debt mountain".

Pat Boyden, a PricewaterhouseCoopers partner, said the rise in the number of IVAs was "staggering" and followed a borrowing binge in the last six years. People in the 30 to 40 age group took out the most IVAs while the number was growing fastest among 20 to 30-year-olds. The majority of young people entering IVAs were manual and unskilled workers rather than students.