Mortgage bombshell leads to surge in the number of Brits ‘going bust’ | Personal Finance | Finance
The number of Britons “going bust” is up by a third on the same month last year against the background of mortgage hikes and the cost of living crisis.
Personal insolvencies in June were 10,395, which was up by 10.3 percent on May and by 32.9 percent on the same month last year.
High interest rates, which have pushed up the cost of mortgage repayments, and the fact more people are relying on credit cards to cover essentials, are seen as factors behind the increase.
The main driver of the increase in personal insolvencies is a rise in Debt Relief Order (DRO) numbers, which hit their highest level since January 2021 following the removal of the fee to apply. There has also been a rise in IVAs – Individual Voluntary Arrangements.
A DRO is an option for people in debt where they owe less than £50,000, do not own their own house, do not have any assets of value and not much spare income.
Individuals need to speak to a special DRO adviser, who will provide help to make an application to the official receiver.
If it is granted, they do not have to make payments towards most types of debt and creditors cannot force them to pay off the debts. A DRO usually lasts a year unless the individual’s situation improves and most debts will then be written off.
An IVA is a formal and legally binding agreement between an individual and their creditors to pay back debts over a period of time. It is approved by the courts and creditors have to stick to it.
Tom Russell, Vice President of R3, the UK’s insolvency and restructuring trade body, said: “The cost of living is still hitting people hard with prices remaining high even as the annual rate of inflation falls to a more typical level.
“The price of food, fuel and energy remains an issue for many, and consumers remain worried about the future of the economy, reluctant to make major purchases and cautious with their discretionary spending.”
He said it will take some time before recent improvements in the economy will feed through to household finances.
“Although inflation and food inflation are falling and a new energy price cap and the warmer weather will likely lead to a drop in energy bills, people have yet to see the financial benefits of these, or of the overall improvement in the economy,” he said.
“We know how hard it is to have conversations about money, but we urge anyone who is worried about their finances – business or personal – to seek advice from a qualified source as soon as possible. Being brave and having the conversation while your concerns are new gives you more options and more time to take a decision about your next step than if you’d waited until the situation had worsened.
“Most R3 members will give potential clients a free consultation so they can learn more about their situation and advise them on the potential options open to them for addressing it.”
Official figures also picked up a rise in businesses going bust. There were 2,361 corporate insolvencies in June, which was up by 15.7 percent on May and by 49.5 percent on the same month last year.
Mr Russell said: “The monthly and yearly increase in corporate insolvencies is driven by an increase in Creditors’ Voluntary Liquidations – a process usually used by smaller businesses, and which is often driven by cashflow problems or difficulties with access to finance.
“Compulsory liquidation numbers have also risen to their second-highest level since January 2021 and suggests that creditors are taking a much tougher stance this financial year.”
