The strains on domestic finances were highlighted by official figures out yesterday showing record personal insolvencies in the first three months of the year and a further rise in home repossessions.
The ease of obtaining consumer credit, legal changes making it simpler to go into bankruptcy and more re-laxed attitudes to personal debt were all responsible, accountants said.
A total of 23,351 people sought individual insolvency through the courts in the first quarter of 2006, a 73.4 per cent increase on the same period of 2005 and 12.9 per cent higher than the preceding quarter. This was the highest level since records began in 1960, the Insolvency Service said.
Vince Cable, Liberal Democrat Treasury spokesman, said: "This is further evidence that high levels of personal debt are leading many people into difficulty. There is a considerable degree of irresponsible lending and aggressive marketing."
Louise Brittain, head of personal insolvency at Baker Tilly, the accountancy firm, said: "These figures are even higher than we expected. We believe they have been bolstered by the Christmas trading period."
The consensus among accountancy firms was that total individual insolvencies could rise to more than 100,000 in the full year.
Mike Gerrard, at Grant Thornton, said: "A growing 'buy now, pay later' culture has led to seriously high levels of personal insolvencies. We wouldn't be surprised to see insolvency numbers exceed 100,000 for the year. Given consumer spending has been broadly reined in, the conclusion must be that previously amassed debt is catching up with people."
Steve Treharne, insolvency head at KPMG, said: "The most recent figures on bank lending show the trend for rising availability of credit has reversed for the first time. But there would have to be a prolonged period of reducing levels of credit before we see an end to these soaring levels of personal insolvencies."
Individual voluntary arr-angements accounted for two-thirds of insolvencies and bankruptcies for the rest. IVAs allow the debtor to agree payments over a period of time. They also freeze interest payments. The average person seeking an individual voluntary arrangement owed 137 per cent of their annual take-home pay, said ClearDebt, a company that makes these arrangements. Men owed more than women while older people had bigger debt problems than the young.
Home repossessions also rose to their highest level since 1992-93. The number of mortgage possession actions, the first stage in a lender taking back a property, rose to 33,442, an increase of 29 per cent on the first 2005 quarter. The number of court orders made rose 57 per cent to 21,997, according to the Department for Constitutional Affairs.
Business insolvencies rose in the first quarter, with the most hard-hit sectors being retail and manufacturing. Company liquidations rose 17 per cent on the same quarter of last year to 3,439. This was made up of 1,428 compulsory liquidations, a rise of 29.5 per cent on last year, and 2,011 creditors' voluntary liquidations, an in-crease of 9.5 per cent.
Lee Manning, reorganisation services partner at Deloitte, said: "We haven't seen the high street crash, but small retailers struggle. From the corner shop to the independent filling station, they can't compete on price and location. In manufacturing, liquidations in chemicals are up 62 per cent."
FT.com
