Debt & Bankruptcy Issues in the UK

A new web site, sort-it.co.uk, was just launched and is dedicated to helping people confess to outrageous purchases that have made. A spokesman from the site said that the “provocative language” on the site was used to "help get the message of personal debt across".

Visitors on the site can make anonymous posts of when they made an unaffordable “stupid” purchase. The site may have just launched, but is already filling up with confessions. One user said, "I was really drunk, and bought two bottles of Cristal on my credit card to show off. Cost me like £200. Soooo stupid..."

The site is targeted to a UK audience and shows that most over-spenders are in Northern Ireland or eastern England.

The site also helps people control their debt and spending by providing a cash planner and information on debt and people who can help you manage your debt.

A Conservative spokesman said: "Sometimes it's necessary to use provocative language to grab people's attention and get them thinking about important issues. If our direct approach helps get the message of personal debt across and offers people some tips on how to manage their situation the initiative will have been well worthwhile."

In a piece for the Guardian, Tory leader David Cameron said: "These are new approaches for a new age, but ones that will continue to demonstrate the Conservatives' commitment to confronting the problems our society faces today. There is an old Chinese proverb: 'Tell me and I will forget. Show me, and I will remember. Right now, the Conservatives are doing a little less of the telling, and a lot more of the showing."

Research by PricewaterhouseCoopers (PwC) has suggested there is a one in three chance of house prices are set to fall between now and 2010. Although PwC says house prices are likely to rise again after that period, the short-term news may come as those struggling to get onto the property market due to debt problems.

People who are struggling to get on the market because of debt problems may get a helping hand according to a new report.

Research published by PricewaterhouseCoopers (PwC) on November 2nd has suggested there is a 33 per cent chance house prices will fall between now and 2010.

PwC economist John Raven said: "Despite the recent relative robustness of the UK housing market, potential home-buyers and investors should not underestimate its volatility in the medium term."

By using the Monte Carlo Simulation, PwC compared to house prices to earnings - and predicted that consistently rising house prices are set for a short-term decrease for the next four years.

However, he added that by 2020 there was an 87 per cent chance of property prices being higher than they currently are now.

News of the report comes as people continue to struggle on the property market due to debt problems.

A survey by the Abbey, also released on October 30th, reported around 7.4 million people cannot afford house prices in their area because of debt.

Meanwhile, a Bank of England report on October 30th indicated increased debt problems across the country as credit card borrowing rose to £365 million. The bank indicated its mortgage approvals were at their highest rate for over two years, while Halifax and Nationwide both reported house price increases.

“Banks are calling for a halt to irresponsible selling of debt relief products, chief executive of the British Bankers' Association (BBA),” Ian Mullen said today after he issued invitations to various debt “write-off” companies and banks to discuss the current state of the financial services industry. According to Mullen, the key issues which will be discussed are the manner in which debt management products are promoted, the advice that consumers receive when they call for help, and the relative costs of different management solutions

Mr Mullen said:
"Banks lend responsibly and assess a customer's ability to make repayments before lending to them. Sadly for a small proportion of people, personal problems can get in the way and some find themselves in financial difficulties. The answer, in the first instance, should always be to contact your lender or to seek independent advice. However, individual voluntary arrangements can be appropriate in some cases, but we are concerned that young, inexperienced and vulnerable people are being targeted by adverts and mail shots which lead them to believe they will be able to walk away from their responsibilities.

The results for their long term financial position could be disastrous as they may find in years to come that they can't get a mortgage or raise a loan to start a business. This would not just be bad news for them but bad news for the whole of the UK economy. Accordingly I have invited the companies involved in debt resolutions to meet the banks to discuss a way forward."

One of the major problems is that banks are not clear about the terms of agreement and will approve just about anybody. Recent market research has shows that “eight out of ten firms did not provide adequate information about their service, costs and the consequences of entering into different arrangements and nine out of ten firms failed to clearly explain available options and their consequences - most only focused on the advantages of an individual voluntary arrangement (IVA) .”

Numbers of female-owned businesses rose to 38,100 in the first half of 2006 due to increased opportunities. However, an ICM report shows women with consistently higher levels of debt than men.

Female-owned small businesses are on the up according to Barclays.

In its report, released on October 23rd, the bank showed women started 38,100 businesses in the first half of 2006, a rise of nine per cent from the same period in 2005.

John Davis, marketing director for Barclays Local Business, said: "Start-ups remain buoyant this year and it's clear that in many areas women are taking the lead and demonstrating how much they can contribute towards the business sector, and the UK economy as a whole."

"There are fewer barriers to entry for women and they are taking advantage. In many areas, women are taking the lead and demonstrating how much they can contribute to the UK economy," he added.

Research also showed growth of women starting businesses outweighed men in London, Yorkshire and the east Midlands.

Across England and Wales, the number of businesses set up by both sexes in the first half of the year increased to 205,000 – a ten per cent rise on the same period in 2005.

However, a survey by research company ICM showed that women are "bingeing on debt" – reported UK Personal Loan Store on October 30th.

According to the research, the attitude of many women towards their debt situation is as dangerous as those suffering from binge drinking or eating.

The report showed British women owed an average £8,219 in unsecured debt, whereas the average man owed £3,436.

Women had higher levels of personal credit card and loan debt than men.

Although the report revealed the reasons for this higher debt were varied, it indicated women were trying to make repayments with marginally or significantly less earnings then men.

In official data that was released today, it was shown that the number of insolvencies in England and Wales has increased by more than 55% over the three month period from July – September which amounts to 27,644 insolvencies. This is just the latest in a number of reports that have been issued by private firms and government organizations stressing the dire financial condition of many residents in the UK and Wales.

The Insolvency Service reported that between July and September, 15,416 people went bankrupt and 12,228 more took out an individual voluntary arrangement (IVA). IVAs let those in debt reach an agreement with their lenders where they will repay and agreed amount of money over a period of time and get creditors to freeze interest payments so that the debt can more easily be paid off. According to the Insolvency Service, “20,293 people in the UK took IVAs in 2005 while almost the same amount did so in the first half of this year alone.”

The number of bankruptcies is 26.6% more than it was last year while the number of insolvencies taken out during this period is an astounding 117.9% increase over last year.

Steve Treharne, head of personal insolvency at financial services group KPMG, said, “The number of people entering IVAs was rising at an astonishing pace” and that the, “average debt owed by someone entering an IVA is almost £50,000” He went on to say that over 1000 people who were issued IVAs sometime in the last quarter had a debt in excess of £100,000 in the last quarter.

Malcolm Hurlston, chairman of the charity the Consumer Credit Counseling Service, said: 'We are concerned by the narrowing gap between the number of bankruptcies and IVAs. If the current trend continues the number of IVAs will overtake the number of bankruptcies next year and that is an indication that the IVA solution is becoming more popular than is good for people.'

Frances Walker, also from the CCCS, said on the BBC Lunchtime News that although IVAs seem attractive, many people who are taking IVAs would be better off filing for bankruptcies.

IVA companies have been earning great profits due to the rise in the popularity of these IVAs as many of these companies can earn anywhere from £1,000 to more than £5,000 for each IVA they help arrange. Yesterday, one of the largest and most popular IVA providers, Debt Free Direct, reported that it has seen a “101% rise in turnover compared with the same six months a year ago.” Other IVA companies, such as Accuma who reported that they have grown over 250% over the last year, are also doing quite well.Coronation Street actor Chris Walker a co-founder of Regional Money Helpline, said: 'Personal debt in the UK is rising by £1m every four minutes, and currently stands at a staggering total of £1.3 trillion.


Mortgage repossession orders soar

Another issue of concern is a new report issued today that said the rising number of home repossession orders as more and more people overspend and accumulate massive debts.

'The report stated : “Millions of UK consumers find themselves either in serious financial difficulties, or on the borderline of falling behind with their regular payments. Despite this, far too many people are unsure where to turn to for sound advice, help, or financial education.”

Steve Treharne at KPMG, told reporters that over the 12 month time span since the end of September last year to the end of September this year, more than 98,000 people have become insolvent through a bankruptcy or an IVA. “The increase in the number of people entering IVAs is causing concern,” he said. “Several leading institutions have raised concerns at these record levels and have commented on the limited extent to which the advice sector is regulated.”

And he added: 'The Government has made it clear that it has no plans at this stage to strengthen regulation. It is therefore essential that all involved have an open dialogue about the solutions which are to be offered to the increasing number of consumers struggling to manage their debts.' Mike Gerrard, head of personal insolvency at financial services group Grant Thornton said, “The number of IVAs was going through the roof” and added: “Individuals with credit card debts in excess of £50/60,000 are not at all uncommon, while the overall age of those affected appears to be on the decrease with a larger proportion of women also noticeable. “

If you are in debt and do not know what to do, below are a few tips to help you get on the road to financial freedom. It was found that the main reason why so many people were going into debt is because they simply ignored any bills and refused to pay them. As a result they found them selves owing more and more and often had to file for Insolvency or give up their assets. As a result, it is very important that you are aware of your financial conditions and you pay off all bills as soon as possible. Higher interest rates are a big problem, so you do not want to get behind on any payments that you must make. You should also be wary of how much you spend using credit cards and to make sure that you “have what you spend”.

If you are in debt, making all payments you owe is your best option, and if your are not in debt, follow the tips above to insure that you will not go into debt.

Gerrard said that he believes due to a variety of factors that will lead many more people into debt over the past few years, more people than expected will file for insolvency and / or lost their assets. “Based on our analysis of Council of Mortgage Lenders statistics for 2006 so far, we believe that upwards of 12,000 homes will be repossessed this year.”

[Following the Bank of England's decision to increase interest rates by 0.25 per cent, numerous debt charities have claimed Britain's financial problems are to increase as homeowners set to pay an additional £35.92 on average every month.]

The Bank of England's decision to increase interest rates for the second time in three months has been met with criticism that it will force more people in debt.

On November 9th, the bank announced interest would go increase by 0.25 percentage points, up to five per cent – the highest figure since the aftermath of the September 11th bombings.

However, it is has been claimed a number of debt charities that the move could further increase Britain's debt problems, as costs are expected to be reflected in further increases in house prices.

A new study published by Egg on November 10th suggested that homeowners would have to pay an additional £35.92 on average each month - a total figure of £292 million.

Sue Edwards, debt officer for the Citizens Advice Bureaux said: "Any increase in mortgage interest rates could spell disaster for people whose finances are balanced on the very edge of affordability."

A report by the charity, on November 7th, revealed the number of people with housing debt to have increased by 20 per cent over the past year.

British Retail Consortium director Kevin Hawkins also said: "The bank should have waited until early next year to see the full impact of August's rate rise.

"By piling another rise on top the Bank has made it more likely economic activity will be depressed over the next six months."