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|Insolvency Market Trends: Q4 2015|
|Wednesday, 18 November 2015|
Recent media reports based on data from the Insolvency Service headlined on the fact that insolvencies have risen for the first time in a year, with a small uplift of 2.8% between Q2 and Q3. However, the bigger picture shows that the overall total remains lower than the majority of the past decade and highlights an actual reduction of around 19% on last year.
Interestingly this new data does suggest that we’re beginning to move away from traditional patterns as Q2, which was historically the largest period in the year for insolvencies, actually saw a fall and this trend continues into Q3.
Bankruptcy and Debt Relief Orders (DRO) have also shown further decline into Q3. However, following the changes which came into effect on 18 September, TDX Group expects to see DRO volumes rise as the thresholds increase and we would expect Bankruptcy volumes to decline as the petition limit increases from £750 to £5,000.
IVA volumes have remained on a steady decline, TDX Group expects to see this continue, with no significant impact from DRO and Bankruptcy changes. North of the border, Scottish Trust Deeds a notable rise in Q3 as the former LILA Sequestration (Low Income, Low Assets) solution ceased in April 2015.
Potential impact of benefits changes
Since the general election the expectation has been set that there will be a reduction in benefits payments over the coming years. Most recently discussed are caps on Tax Credits and restrictions in disability support. As previously discussed (Source: Insolvency Market Trends Q2 2015), over the past seven years TIX has seen a shift in IVA and Trust Deed consumers, with a greater volume of tenants (70% of 2015 volumes) combined with lower unsecured debt levels and lower monthly contributions (Source: Insolvency Market Trends Q1 2015). Aligned to this is an increase on benefit reliant consumers, defined here as a consumer with over 50% income not from salary or pensions.
Between 2008 and 2015 the proportion of benefit reliant consumers has increased for both tenants and homeowners:
Tenants increasing from 8% to 25%.
Homeowners increasing from 2% to 10%.
These changes are linked to the changing debt mix within IVAs and Trust Deeds, historically benefit reliant IVAs have performed well, however if and when proposed cuts go ahead these consumers could find themselves unable to maintain arrangements. This should also lead to an increase in DROs, especially under new guidelines, as affordability is reduced and debt levels increase from £15,000 to £20,000. It is not yet possible to predict this impact as the full extent of the cuts are yet to be fully released and put in to effect. This is certainly an area of interest as proposed savings to the welfare budget will continue to be suggested over the next five years, and something TIX will be revisiting over the coming months to assess the impact on both new and ongoing arrangements.
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