Personal finances under pressure as insolvencies climb

Personal insolvencies increased in quarter three, driven by an increase in individual voluntary arrangements (IVAs) which reached a record high.

The latest statistics from the Insolvency Service show that the total number of personal insolvencies increased by over 10% compared with the previous quarter although the total number of personal insolvencies remains broadly similar to the same quarter in 2016.

The largest increase was in the number of Individual Voluntary Arrangements (IVAs) which is at an all-time record level and account for over 60% of the total personal insolvencies for the quarter.

There were 25,479 individual insolvencies, comprising 15,523 IVAs, 6,274 debt relief orders (DROs) and 3,682 bankruptcies.

Alec Pillmoor, a personal insolvency partner at RSM, believes that these statistics may be the precursor to increased problems for households in 2018.

He said: “The increase in the number of IVAs indicates that many people are taking positive steps to resolve their financial issues. However, should the widely predicted increase in interest rates occur next week, this will have a significant effect on those households that are just managing on their income. A family with a variable interest mortgage of £125,000 would see their monthly payments increase by around £15 each month should the base rate increase by 0.25 per cent.”

“In addition, private landlords that have variable rate mortgages may find that their disposable income is significantly reduced, not only by the likely increase in interest rates, but also the reduced tax relief on interest that has commenced in the current tax year. This could bring longer term issues to this sector should landlords not address their issues very quickly.”

The number of IVAs in Q3 2017 rose 18.3% compared with Q2 2017, reaching the largest quarterly number of IVAs since they were introduced in 1987.

Bankruptcies overall fell by 2.2% on the quarter and by 5.2% on the year. Bankruptcies on debtors’ own application increased slightly on the quarter, but were lower than a year ago. Bankruptcies on a creditor’s petition were lower than in Q2 2017 and Q3 2016.

In the 12 months ending Q3 2017, the rate of insolvency was 21.0 per 10,000 adults (one in 477 adults), the highest level since the 12 months ending Q4 2014.