Rising debt levels threaten market

Angela Faherty

June 10, 2006

Recently published statistics from the government’s Insolvency Service revealed more than 23,000 people became insolvent in England during the first three months of 2006 – a rise of 73 per cent on the same period last year. In light of this, Moore and Blatch has expressed concern that 2006 could see record levels of personal insolvency.

Paul Walshe, head of lender services at Moore and Blatch, said the explosion in personal insolvency levels was a worrying trend for lenders. He said: “For several years now lending has boomed to fuel the growing ‘buy now, pay later’ culture. This has been supported by rising property prices, coupled with low interest rates and stable unemployment to create high consumer confidence.

“These figures show debt has spiralled out of control for thousands of individuals. More than 100,000 people are likely to enter Individual Voluntary Arrangements (IVAs) this year. In recent months, more stable house prices, the potential for Bank of England interest rate rises and rising unemployment are starting to bring a dose of reality to the consumer.”

Walshe added the Council of Mortgage Lenders (CML) had already reported rises in arrears and repossessions over the past year and said these statistics gave a strong indication that tougher times may be around the corner for lenders. “Now would be a good time to review and tighten procedures for arrears management and shortfall recovery,” he said.

Despite this, Bernard Clarke, spokesperson for the CML, said the number of people in arrears and facing repossessions was still significantly low. He said: “There was a slight trend upwards after the Base Rate increase in 2004, but arrear and repossession numbers are still small.”

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