Christmas overspending will fuel record levels of insolvency this year, leading accountants predict.
More than 9,000 people will either file for bankruptcy or its less stringent form - an individual voluntary arrangement (IVA) - in the first quarter after over-burdening themselves during the festive period.
The accountancy firm Grant Thornton forecasts that when combined with the effects of the credit crisis, this over-spending will see a record 120,000 people being declared insolvent this year. This would be a nine per cent rise on the 110,000 who went bust last year and the 107,000 in 2006.
Figures suggest that shoppers on the high street and online spent more this Christmas than in 2006 after being tempted by big discounts. This is despite many struggling with credit cards repayments, personal loans and higher mortgage costs.
Mike Gerrard, the head of Grant Thornton's insolvency practice, said: "Sadly, many individuals spend on credit at Christmas and pay no heed to the financial warning bells. Come January, they find themselves in a situation where previous financial woes are compounded and insolvency becomes the only way out.
"I'm not surprised that people want to carry on spending, because we've got into the habit now. But I am surprised that people had the money to spend. All the evidence suggests that credit has already tightened because of the credit crunch - people are being turned down for credit cards."
Figures last month suggested that 4.4 million people were still paying off debts from Christmas 2006.
James Ketchell, at the charity Consumer Credit Counselling Service, said: "January and February are our busiest months. People are under a lot of pressure to put on a big Christmas."
However, he said overspending at Christmas was likely to be just one factor that pushed debtors over the edge.
The Bank of England has already warned that the proportion of households with difficulties meeting debt repayments is at its highest for almost 15 years - primarily due to higher mortgage rates.
The bank reduced interest rates from 5.75 per cent to 5.5 per cent last month to alleviate problems.
However, around 1.4 million homeowners face mortgage repayment increases of up to £200 when fixed-rate deals taken out two years ago end. Last month's rate cut will have only a minimal effect as food and energy costs are rising faster than inflation.
Experts fear that many people have relied on re-mortgaging their homes to fund shopping sprees - an option no longer available as house prices stagnate.
|
