The publication of a new set of figures has uncovered an increase in the number of Britons becoming insolvent.
Figures from the Insolvency Service have indicated that some 26,956 individuals developed unmanageable debt difficulties during the second quarter of 2007. Although the latest data revealed an 8.1 per cent fall from the first three-month period of this year, insolvencies were show to have risen by 4.2 per cent from the same time in 2006.
The increase was largely attributed to a rising popularity of individual voluntary arrangements (IVAs). During the quarter, take-up of IVAs rose by 15.1 per cent from figures recorded between January and March. Meanwhile, the quantity of consumers filing for bankruptcies between April and July totalled 16,258 as they struggled to make repayments on personal loans and credit cards - an increase of 7.7 per cent from the same period in 2006.
As a result, Britain's average household debt is reported to be rising by 13 pounds every day, with the typical amount owed now standing at 8,841 pounds - however this increases to 55,567 pounds when mortgage costs are taken into account. Commenting on the figures, uSwitch claimed that Britons' finances are increasingly under pressure due to "soaring debt levels" and the impact of five base rate rises by the Bank of England's monetary policy committee (MPC) since August last year. With interest rates going up by 0.75 per cent since the start of 2007, homeowners are reported to have seen their annual mortgage repayments surge by 677 pounds, as the cost of running the typical home increases by an average of 30 pounds a day.
Mike Naylor, personal finance expert from the price comparison website, said: "It is worrying that so many people are resorting to individual insolvencies, be it an IVA or bankruptcy, to resolve their personal debt problems. Consumers have a high propensity to borrow these days and there is a real risk that we will see many more people in serious financial difficulty if there are further increases to the base rate before end of the year or if we experience a sudden change to our existing economic climate".
David Kuo, head of personal finance for the Motley Fool, added that today's announcement serves as "a timely reminder that none of us can afford to be complacent as long as we owe money". He added: "Whilst many of us may be able to effortlessly service our loans today, any unexpected changes to personal circumstances can quickly send us down a spiral of debt. Consequently, it is a good idea to get a flexible loan and make extra payments when we can afford to do so". Mr Kuo also claimed that borrowing can "sometimes seem like an easy option, but a personal loan can quickly turn into a millstone around our necks".
At the beginning of July, Richard Al-Dabbagh, Alliance & Leicester's senior personal loans manager, reported that despite their "good intentions", Britons do not often take the time to choose the most competitive form of borrowing. Suggesting that those funding large purchases via store cards and dealer finance products could save money by opting for a cheap personal loan instead, he pointed to a study revealing that 42 per cent of car buyers opt for an expensive forecourt finance deal due to convenience.
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