Press Room
Christmas financial hangover will fuel third of all
personal insolvencies in first three months of 2008
Thursday 3 January 2008
*10,000 a month likely to become insolvent in 2008
Excessive Christmas spending will fuel at least a third of all
personal insolvencies in the first three months of this year with
28,000 individuals likely to become insolvent in the first quarter
of 2008, according to Grant Thornton's personal insolvency
practice.
It is expected that the total number of personal insolvencies for
2007 will reach 110,000 and that in 2008 120,000, or 10,000
individuals a month, will become insolvent. The prediction comes in
the wake of record numbers of personal insolvencies in 2006, which
topped 100,000 for the first time ever*.
Mike Gerrard, Head of Grant Thornton's personal insolvency
practice, says, "Sadly, many individuals spend up 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 by the bills arriving from the
festive season and in these situations insolvency becomes the only
way out."
Gerrard accepts that personal insolvency numbers for the next
quarter will be down slightly on the figures for the equivalent
period last year, but predicts that things will get worse with
banks tightening their lending, the housing market slow down and
rapidly increasing cost of commodities all beginning to bite during
2008.
"Despite tight credit and predictions of a slowdown in consumer
spending this Christmas, many individuals will have increased their
spending over the festive period**. So it is inevitable that more
people will help flare up the statistics in the new year as they
carry on spending even when available cash becomes tighter."
Gerrard says the recent quarter point drop in interest rates will
do little in the short term to avert the course of those
individuals heading for insolvency when compared to the frequent
increases in rates seen over the past two years that have
contributed to mounting personal insolvency numbers. This situation
will be further exacerbated by the 1.4 million individuals***
expected to come off low, fixed-rate mortgages in 2008 exposing
them to high interest rates currently sitting at 5.5%***.
Gerrard believes steady increases in the cost of living are taking
their toll on individuals with finances already stretched to their
limit. "Take for example fuel prices. In only 12 months the cost of
filling up a vehicle with unleaded petrol has increased by 16%*****
which means Joe Public is now having to find an additional £155
this year to fill up the car******. Coupled with rapidly increasing
gas and electricity prices, which are forecast to jump by more than
10% early this year*******, and it's easy to see how those already
struggling to pay off credit, particularly those servicing
mortgages, are caving in to the pressure."
Looking further ahead Gerrard said: "I believe personal insolvency
numbers will move forward at a much faster pace than
anticipated. While they may settle down before next Christmas, they
will do so having edged closer to a total of 120,000 personal
insolvencies for 2008 - 10,000 a month. With the credit crunch yet
to fully bite, there are simply not the conditions in place to
expect a drop."
* Source: Insolvency Service
** Source: MasterCard Research: Retail sales in the run-up to
Christmas rose a seasonally-adjusted 2.4 per cent compared with
2006.
*** Source: Bank of England
**** Source: Council of Mortgage Lenders
***** Source: AA, average monthly fuel prices (Jan 07 & Dec
07)
****** Price rise in cost of filling up car calculated as follows
(figures sourced from AA, Dept. of Transport):
- Average number of kilometres travelled per vehicle in the UK
equals 14,500kms per year
- Average car can travel 13.6km on one litre of petrol meaning
1,066 litres of petrol would be required to travel 14,500kms per
year
- Cost of filling up average gas tank (50ltrs) in January 2007 with
average price per litre of unleaded fuel at 87.5p would be
£43.75
- Cost of filling up average gas tank (50ltrs) in December 2007
with average price per litre of unleaded fuel at £1.02 would be
£51
- Rise in cost of filling up average gas tank since Jan 07 equals
£7.25
- At Jan 07 average fuel prices, total cost of 1,066 litres of fuel
is £932.75
- At Dec 07 average fuel prices, total cost of 1,066 litres of fuel
is £1,087.32 (difference = £154.57)
******* Source: Centrica & nPower