Concern that the UK’s "debt crisis" was spiralling out of control increased in 2006 with a record number of people failing to keep their heads above water.
The personal debt mountain is now more than £1.3 trillion (€1.9 trillion) whilst for the first time the amount of people going insolvent during the year will top 100,000.
And the picture could get worse in 2007 as consumers continue to pay the price of chronic overspending in the first half of this decade, experts predict.
However, amid all the gloom, latest indicators show that attitudes to racking up credit card bills are beginning to change for the better.
Nevertheless, figures released over the past year did not make encouraging reading for anyone other than debt collectors.
Consumers in the UK are now responsible for a third of all unsecured debt in Western Europe, with the typical Brit now owing more than £3,000 (€4,500) – almost double that of his continental cousin.
Hikes in household bills coupled with two interest rate hikes in quick succession pushed many homeowners over the brink in 2006.
Repossessions are up by more than 20% year-on-year according to latest government figures, while at the same time the amount being borrowed to buy a new home is still increasing.
Citizens Advice said in the last financial year, the number of people seeking help for serious debt problems rose 11% to 1.4 million – an indication that more people are finding themselves in financial difficulty.
The amount of people going to Citizens Advice with housing debt worries was up 20%, figures showed.
Stephen Rose, director of Debt Advice Bureau, said the high level of consumer debt in 2006 was a result of a combination of factors, including easier access to credit, but the main factor was overspending by consumers.
He added: "The simple fact is the amount people are spending and borrowing is growing faster than their incomes – it is a simple mathematical equation.
"People will still continue to overspend. County Court Judgements will continue to rise, bankruptcies and IVAs will continue to rise, repossessions will continue to rise. We will still have increasing number of people in debt even if nothing nasty happens.
"If something nasty does happen, all bets are off."
A housing crash, a flurry of interest rate rises or an economic slump could spark a deepening of the crisis.
But others are less pessimistic about the current situation.
Pat Boyden, personal insolvency partner at PricewaterhouseCoopers, said: "I’m not sure it is a crisis. The bare figures look dreadful, but I think essentially the worse is over. There will probably be a hangover in 2007 but unless consumers start hitting their credit cards again I do not see it increasing significantly."
It is also possible that easier access to debt solutions through individual voluntary arrangements (IVAs) and heavy marketing by debt management firms may have exaggerated the extent of the problem during the year.
One way or another, it would appear that frightening headlines over Britain’s looming "debt crisis" has had some impact on consumers – Christmas spending is restrained, as is the amount people are prepared to put on their credit cards in recent months.
Steve Treharne, head of personal insolvency at KPMG, said: "Is it a crisis? I would say it is – it certainly is for those involved. But the problem has been building up. This year was not a shock."
"Credit has been widely available, banks and consumers have not been acting responsibly.
"This year the problem became more visible. The problem is out in the open and people are talking about it more. It is almost like an alcoholic admitting he has a problem – part of the solution is admitting you have a problem."
Despite predicting that insolvency figures would be up again in 2007, Mr Treharne said he believed that society was beginning to get back on the right track.
He added: "Banks have tightened up their rules on lending and for whatever reason consumers are being more sensible. There is a sense that people are taking it seriously and beginning to realise they can not go on like this.
"However, there are still plenty of people with a problem that haven’t faced up to it yet and they still need to come through the system."
Source: The Irish Examiner
Please post any news stories about IVAs here:
http://www.iva.co.uk/forum/default.asp?CAT_ID=5
