More People Live In Fear Of Bankruptcy Or Repossession

Rising mortgages costs, the credit crunch, and increasing inflation is putting pressure on homeowners, and nearly three million are afraid that they may lose their homes to repossession this year. There is apparently a "frenzy of fear" among consumers, according to a new study.

Personal finance website MoneySupermarket.com asked in a survey whether people feared bankruptcy or home repossession this year. The results suggest that people have really had the wind put up them by the falling stock market, stalling house prices, and rising utility bills, amongst other factors. Around 3% of respondents said that they might go bust - that's 1.35m adults. More than double that number - 6%, or around 2.7m adults - replied that they might lose their homes.

Most experts agree that bankruptcies and repossessions will rise this year. The mix of rising debt, together with rising mortgages, and increasing costs of fuel, energy and food mean that households are going to struggle to keep up with bill payments. In addition, pay rises are currently running below the level of inflation.

Nevertheless, experts don’t think the problem will be as wide-spread as many people fear. Accountants KPMG reckon that 75,000 bankruptcies will be declared this year, and the Council of Mortgage Lenders thinks that only 45,000 homes will be repossessed.

Tim Moss, head of loans at MoneySupermarket.com, understands people's pessimism. He said: "People don’t know when the credit crunch is going to stop. Many people are starting to feel the pinch, with stock markets falling, their utility bills rising and their disposable income going down - and they may never have experienced that in the past. This has created a real frenzy of fear."

Spokeswoman at the charity Consumer Credit Counselling Service, Frances Walker, commented: "It may be no bad thing if people are overly pessimistic about their finances. It might mean that they start reining in their spending."

Last year a report suggested that around ten million adults in Britain were living on the edge of financial meltdown as debts were getting out of control. Around 12% - 5.4 million missed payments for bills or outstanding debts in the last six months of 2007, and one in ten had a direct debit, cheque or payment rejected by their bank due to lack of funds in the same period.

One way out of the financial hole is to apply for an Individual Voluntary Arrangement (IVA), an alternative to bankruptcy. Such an arrangement allows people in debt to agree a scheme of repayments over a five year period, with the payments reduced. It means that the creditors get some money back, whereas in a bankruptcy they may not. With a regular income, but several lines of credit you’re struggling to repay, an IVA could be a solution. An 'amnesty' between banks and the sellers of IVAs means those with severe debt problems should find it easier to pay off their loans.

Insolvency director of Debt Free Direct, Derek Oakley, said: "All this does is tighten up and simplify what's already in place. I'm not sure we will be forwarding more people for an IVA, but this means that more people should be accepted and less will have to resort to bankruptcy."

Published on January 31, 2008