Personal insolvency rate continues to rise

The rate of people entering a personal insolvency procedure shows few signs of slowing down as the rolling 12-month insolvency figures continue to rise.

The Quarter 2 figures, released by the Insolvency Service, represent the highest ever Q2 figures since 2010, with 30,936 individuals entering either bankruptcy (4,228), a debt relief order (6,752) or an individual voluntary arrangement or IVA (19,956).

Alec Pillmoor, Personal Insolvency Partner at RSM said: “Following the near decade long highs of 2018 and Q1 of 2019, personal insolvency numbers remain high and remain comparable to the first quarter of 2019, resulting in an increase in the rolling 12-month insolvency rate.

With near full employment and low interest rates, you would expect personal insolvency rates to fall, but in fact, insolvency levels have risen by 7.2% when compared with the same quarter last year.

“This suggests that many people continue to be over-optimistic when it comes to estimating their ability to meet repayment demands as they fall due.”

Despite being the highest Q2 figures since 2010, the numbers fell 1.3% from Q1 in 2019, which was the third highest number of personal insolvencies since 2011.

Duncan Swift, President of insolvency and restructuring trade body R3 said: “Although total personal insolvency numbers have dipped slightly, the bigger picture is worth keeping an eye on. The last quarter saw the third highest number of personal insolvencies since 2011.

“Individual Voluntary Arrangement (IVA) and Debt Relief Order (DRO) numbers have only fallen slightly, while bankruptcy numbers have climbed again.

“They’re now at their highest level since 2014, and tend to be a reasonably good indicator of serious, unsustainable indebtedness. The situation is still serious for the UK’s personal finances.”

Young Adults

The figures have raised concern for the number of personal insolvencies among young adults.

In 2016, adults under 25 accounted for 1% of personal insolvencies. This has now gone up to around 6.5% today, making up around 2,000 of the total personal insolvencies in Q2.

“In this climate of low interest rates and relatively easy access to credit, it is entirely feasible that young people without financial experience or literacy may be more susceptible to the temptations of easy money,” said Pillmoor.

Debt charities have also raised concern about the increase of sub-prime credit cards being targeted at people with low credit scores.

With relatively high APRs compared to other short-term alternatives, people with limited understanding of how easy it is to rack up unsustainable debt can get caught out.

Brexit Warning

With the current climate of uncertainty surrounding the UK’s future, particularly with regards to Brexit, there is a general concern that the insolvency rate could increase even further.

Pillmore warned: “A note of caution for consumers in general however. Given the current weakness of the pound and Brexit-related economic uncertainty, many consumers may wish to give closer consideration to their holiday spending this summer to avoid getting into trouble further down the line.”