Personal insolvencies rise by almost a quarter to over
30,000 - the highest ever level
4 May 2007
*OVER 330 PEOPLE A DAY ENTER A BANKRUPTCY OR AN IVA
*INTEREST RATE RISES AND UTILITY COSTS ADDING PRESSURE ON THOSE
ALREADY FINANCIALLY STRETCHED
*CORPORATE INSOLVENCIES STEADY BUT DEBT RESTRUCTURING ACCOUNTING
FOR LOW NUMBERS
The number of UK personal insolvencies has risen yet again, this
time by almost a quarter (23.9% on the previous year) breaking all
previous records. 30,075 individuals entered into bankruptcy or an
IVA* (Individual Voluntary Arrangement) during the first quarter of
2007. Figures issued today by the Insolvency Service and analysed
by Grant Thornton's Personal Insolvency practice also show
bankruptcies increasing by 10% on 12 months ago and the growth in
IVAs continuing relentlessly at a rate of almost 50% (47.6%) during
the same period.
Commenting on the continuing problem of personal debt, Mike
Gerrard, Head of Personal Insolvency at Grant Thornton, said, "The
fact remains that many in the UK are still hooked on spending on
credit. The ensuing consequences are being exacerbated by
continuing increases in the cost of living, over and above the rise
in income levels. More and more people are finding their already
precarious finances squeezed further, with many unable to cope and
fast-tracking to IVAs or bankruptcy, once the last resort but now
ever more common."
In relation to bankruptcies, Gerrard added: "While the numbers
where creditors initiate proceedings against individuals who are
unable to repay their debts have been largely unchanged for the
last eight years, the proportion of people throwing in the towel
and opting for a bankruptcy themselves has gone through the roof.
Debtors' petitions which are now five times higher than the levels
of 1998 account for 85% of all bankruptcy proceedings."
Gerrard believes the continual upward trend in personal
insolvencies is being fuelled by hefty increases in the cost of
living. In particular, consecutive interest rate rises that have so
far failed to curb inflation and consumer spending have taken their
toll rising from 3.75% in November 2003 to the current 5.25%.
"In just over three years the cost of an average 25-year
standard variable rate repayment mortgage of, say, £100,000, has
increased by £530-a year while the average household utilities bill
has increased by £225** since 2004/05. Many have simply not coped
with its effects".
"Higher outgoings, coupled with the effect of interest rates on
credit and store cards that may have rates of between 20 to 30%,
represent a serious problem for anyone walking a financial
tightrope," he continued."
Mark Allen, Grant Thornton's Head of IVAs, said that the rise in
IVAs comes despite a tougher stance by creditors. "Banks are now
implementing more stringent policies on debt recovery or indeed
rejecting those IVA proposals that are deemed too lenient. As a
consequence, the rate of growth of IVAs has slowed."
"Additionally, on the back of complaints to the advertising
watchdog the more aggressive examples of IVA advertising are being
prevented, and this too may have also stunted the growth of IVA
numbers."
Corporate insolvencies:
Malcolm Shierson, a corporate recovery and reorganisation
partner at Grant Thornton said: "Administrations and receiverships
are down by 13% on the same period a year ago. While at first
glance these figures may suggest relative buoyancy among UK
corporates, other than for a natural company churn in the economy,
it is not all that it seems."
"In the past the insolvency statistics were a good indicator of
the health of Corporate UK, however, these days a more accurate
indicator would be the level of restructuring activity and profit
warnings. To read into the insolvency statistics that UK Corporate
health is rosy, would not be entirely correct."
"In particular, private equity, hedge funds and distressed
investors are prepared to buy into situations that would
traditionally have been insolvency cases and this trend will
continue as long as liquidity is available."