Excessive consumer spending over Christmas is likely to trigger a third of the expected personal insolvencies in the first quarter of 2008, according to a new study.
Grant Thornton’s personal insolvency practice predicts that the total number of personal insolvencies will reach 110,000 in 2007 and increase to 120,000 in 2008.
In 2006, personal insolvencies rocketed to 100,000, mainly owing to the growth in individual voluntary arrangements. IVAs – the increasingly popular alternative to bankruptcy – reached 44,000 in 2006.
Grant Thornton expects 28,000 individuals will become insolvent in the first quarter of 2008.
“Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells,” said Mike Gerrard, head of Grant Thornton’s personal insolvency practice.
“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.”
A recent study by PwC says consumer indebtedness has more than doubled since the start of the millennium.
Analysts are predicting that personal insolvencies could start rising in 2008 as higher mortgage payments caused by the credit squeeze take their toll on overindebted consumers.
An estimated 1.4m people coming off fixed-rate mortgage deals arranged two years ago could now see their average monthly repayment jump by about £140 when they remortgage.
This is because the credit squeeze has resulted in mortgage lenders raising rates and becoming more selective in offering home loans to consumers.
Mr Gerrard predicts that things will get worse in 2008 with banks tightening their lending and a slowdown in the housing market.
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, he says
Mr Gerrard added that steady increases in the cost of living such as higher fuel and utility prices were taking their toll on individuals with finances already stretched to their limit.
The Consumer Credit Counselling Service, a charity that deals with people in financial difficulty, said yesterday it expected to see an increase in bankruptcies in 2008. It has just set up a telephone helpline.
Frances Walker of the CCCS said that it expected more consumers would come to them after struggling with mortgage payments. Currently, around a third of people who use the service are homeowners.
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