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300 Brits a Day Declaring Themselves Insolvent

With the Bank of England’s latest round of interest rate hikes less than a week old, a report recently published by the Department of Trade and Industry shows that 300 Brits a day are now finding it so hard to come up with the money they need to repay their debts they’re deciding to call it a day and declare themselves insolvent.

On the other side of the great divide are the many UK lenders who are screaming that recent changes in the bankruptcy and insolvency legislation mean that debtors who can easily afford to repay their debts are avoiding their debt obligations by declaring themselves insolvent.

However, clearly not all of the record number of UK insolvencies can be blamed on borrowers looking to avoid their debt repayment obligations. Additional reports recently published showing the number of UK property repossessions having almost doubled year-on-year in 2006, and with further reports showing that the number of mortgage arrears in the UK have jumped from 54,000 to 63,000 in the last six months alone, most industry analysts are now in agreement that there in an undertone of concern.

Most at risk of finding themselves in financial difficulties are the millions of first-time buyers in the UK who have been so desperate to get on the UK housing ladder that they have borrowed considerably more than they can now repay following two recent interest rate hikes and the hefty increases in UK energy and utility bills over the summer.

Commenting on the recent trend in record insolvencies in the UK, Sue Edwards, of Citizens Advice, said: “We are already seeing a rapidly growing number of people falling behind with mortgage payments and in some cases threatened with repossession, and we know a lot of people are taking on mortgages that stretch them to the absolute limit”, a view echoed by Howard Archer, economist at Global Insight, who said: “With unemployment continuing to rise, utility bills soaring, debt levels at record highs and home buyers stretching themselves ever more as house prices rise move significantly higher, it seems certain that individual insolvencies and mortgage repossessions will climb markedly further over the coming months.”

Although those Brits with tracker home mortgage loans will see their repayments rise by the Bank of England’s announced 0.25% increase immediately, mortgage lenders offering Standard Variable Rates, such as Abbey and Nationwide, have so far held off announcing any increase in their mortgage interest rates. How long they will hold off is, of course, another thing and those with SVRs should expect their lenders to announce new rates within the next week or so.

Unfortunately, even those who are on fixed rate mortgages won’t likely escape the current woes totally unscathed. Average fixed rate home mortgage interest rates have raised by over one percent point in the last three years, so those coming off a three year introductory first-time buyer fixed rate mortgage in the next few months will likely be in for a big shock when they see the increase in their monthly home mortgage repayments.

Richard Smith
14th November 2006


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