Household debt continues to rise

Despite the experts sounding alarm bells since 2001, the amount of money owed is also climbing. A survey conducted by the British Bankers’ Association found that net borrowing on credit cards had increased by £503m since May 2002, while personal loans and overdrafts were up by £156m.

‘Consumer spending is continuing to mount despite a drop in disposable income,’ said Philip Middleton, head of retail banking at E&Y. The figures, he said, will concern IPs who fear the increase of personal debt will lead to more people going into bankruptcy.

John Verrill, president of R3, said the insolvency trade body had commissioned a study in conjunction with Bangor University, the Insolvency Practitioners Association and ACCA. According to Verrill, the sheer volume of debt could overwhelm banks. ‘If interest rates go up, these households won’t be able to cope. The banking system, which operates on margins of 1%, could not cope with the amount of provision required as a result of this over-indebtedness,’ he said.

R3 wants to find a solution. ‘We must ensure this market, which has an urgent need for sensitive counselling and compassionate arrangements is addressed,’ said Verrill.

The last recession, he added, was typified by the debt mountains of large companies, and IPs were able to work through the problem. Verrill said individuals should be given the same relief. ‘Households with debts in the region of £10,000-£15,000 are not susceptible to the same economics of scale as the corporate debt mountains. But the individual is just as deserving.’

Although mechanisms are in place to rescue indebted consumers in the new insolvency laws, Verrill says the government has not done enough.

‘Assistance is required or debtors will be forced into the arms of debt management companies which charge fees and offer no relief.’

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