Teetering on the edge of financial distress? Experiencing a rise in household debts? Chances are, you are not alone. In fact, official statistics released earlier this year by The Insolvency Service revealed that personal insolvencies reached a total of 90,930 last year. These figures were alarmingly the highest recorded since 2010 and saw a 13 percent rise from 2015.

Consumer borrowing to blame?

Despite the UK’s decision to leave the EU in June, many had initially feared the result of Brexit would lead to an immediate downturn. However, last year saw Britain’s economy become the fastest-growing major advanced economy. At the same time, however, this has coincided with Britain becoming increasingly reliant on consumer borrowing with figures revealing that the rate of borrowing is at its highest for 11 years. Figures from The Bank of England revealed that in November 2016, consumers owed £178.2 billion on credit cards and loans, implying an increase of spending on the High Street. Figures also revealed that the average person in the UK now had borrowings of £2,759, all at a time where consumers are saving less. This amount is even more staggering considering mortgages were not taken in to account.

Economists had long predicted a period of healthy consumer confidence, especially with employment levels relatively high and purchasing power benefiting from earnings growth still running well above consumer price inflation. However, this is unlikely to last, especially if the economy weakens and prices are to rise due to Brexit uncertainty.

A predictable predicament?

One of the most common reasons cited for an increase in personal insolvencies has been the low interest rates witnessed over the past few years. Since the end of the financial crisis in 2008, statistics have shown that people in the UK have taken advantage of the cheap credit available, with some doing so to the extent that they have been indirectly overstretching themselves financially.

Alarm bells had already started ringing in 2016 when a report by The Money Advice Service, which is an independent body set up by the government offering advice on money guidance had suggested that 8.2 million or 16.1% of the entire UK population were living with serious debt issues. Of those bordering on high levels of debt, the report revealed that young adults, single parents, renters and larger families were particularly at risk. The analysis indicated that there was a correlation related to debt levels and having children, with the likelihood of debt issues being raised by up to 50%. At the same time, those who are renting are more likely to acquire debt as opposed to those who own their own homes. In addition, the report showed that one in every four young adults amongst the 25-34-years-old age group were experiencing some sort of debt related issue. The biggest problem hotspots in the report were shown to be in Sandwell, Merthyr Tydfil and Blaenau Gwent, where almost one in every four people were said to be over-indebted.

Nevertheless, The Bank of England has previously warned that economic growth is likely to slow down this year due to the fall in the value of the pound pushing up inflation. Should interest rates rise hand in hand with living costs, then the chances of those already affected by high levels of debt could see many households topple in to more serious debt problems. This could certainly put a squeeze on certain household incomes.

The most important aspect to consider in all of this though is that should you find yourself struggling with considerable debt, there are many options available for you to take. PCR can assist by reviewing your financial situation and can advise you on the best course of action to take. For advice, please contact your nearest PCR office.

Ahmed Ali
Practice Development Executive

 

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