The number of people becoming insolvent unexpectedly dropped last year for the first time in nine years but experts warned 2008 was likely to set another record high as debt problems mount.
Government figures showed that personal insolvencies in England and Wales fell 4% in the final quarter of 2007 to 24,846 - a drop of 16.4% from the same period in 2006. That left the overall total of people declaring themselves insolvent during 2007 just below the previous year's record levels at 106,645.
The level of bankruptcies rose 2.4% during the year, although a fall of nearly 5% in the number of consumers taking out individual voluntary arrangements (IVAs) pulled the overall figures down.
Experts said that the drop in IVAs - agreements between a debtor and their creditor arranged by an IVA company to avoid bankruptcy - did not, however, presage the start of a downward trend.
Mike Gerrard, head of personal insolvency at Grant Thornton, said: "Take no heart from this quarter's drop in personal insolvencies. From here on in, it's going to be a rough ride for many individuals."
Experts say insolvencies will reach a record level in 2008 as many borrowers struggling with the UK's £1.4tn debt mountain face much higher rates after they come off cheap fixed-rate mortgages
A row between creditors and IVA providers last year is widely thought to have depressed IVA numbers last year. The agreement of a code of conduct for IVAs this week, though, means the number of such arrangements is expected to rise.
Bev Budsworth, director of The Debt Advisor, said: "Whilst informal debt management plans have their place, it is absolutely essential that individuals with high levels of debt get access to IVAs. The IVA does provide increased levels of certainty: guaranteeing repayments and ensuring that creditors cannot renege on them once the plan is underway."
Mark Sands, head of personal insolvency at KPMG, said: "The broader picture is that although the number has dropped, almost every economic indicator suggests things are going to get worse before they get better. We remain concerned that the credit crunch and mortgages expiring for people with cheap fixed-rate mortgages and the IVA protocol mean it will bounce back in 2008." He predicted insolvencies would hit a new high of 130,000 this year.
Philip Hammond, shadow chief secretary to the Treasury, said: "For 10 years, Gordon Brown fuelled Britain's economy with easy credit and public borrowing. On his watch, personal debt has soared to more than £1tn. Now, faced with falling take-home pay, a slowing economy and soaring living costs, the chickens are coming home to roost."
Pat Boyden, at PricewaterhouseCoopers, said: "For much of last year, over-indebted consumers relied on remortgaging to stave off bankruptcy but the credit crunch put a spanner in the works as lenders tightened their lending criteria. This has led to the most financially stretched consumers reverting to more expensive borrowing on credit cards and loans, which may result in rising numbers of personal insolvencies this year." |
