Personal insolvencies fall 10% despite cost-of-living crisis – but experts warn it cannot last
The number of personal insolvencies in the UK has fallen 10% from 32,197 in the first quarter of the year to 28,946 in the second quarter* says Mazars, the international audit, tax and advisory firm.
Banks and building societies are continuing to offer forbearance (e.g. grace periods) to those unable to make repayments on their debts. Regulators have put pressure on lenders to offer payment holidays and reschedule debts to be repaid over a longer period.
However, Paul Rouse, Partner at Mazars, says that the highest interest rates in 13 years combined with surging inflation is likely to ultimately drive more people into insolvency.
Comments Paul Rouse: “Ramping up interest rates to slow surging inflation is the kind of strong medicine that is inevitably going to lead to more bankruptcies. At some point the dam will break – it’s only a question of when.”
The number of people paying higher interest rates on their mortgages is rising daily as fixed rate mortgages taken out at lower rates start to come to an end. Personal insolvencies are likely to increase as the cost of managing debt increases and eats into people’s cash reserves – if they have any.
HMRC have also indicated that they are no longer able to exercise forbearance towards tax debtors as they switch their focus to improving public finances. This will ultimately lead to more insolvencies as HMRC increases pressure on debtors struggling with unpaid tax bills.
Paul Rouse adds: “Having shown a considerable degree of forbearance during the pandemic, HMRC’s priority is now shifting to balancing the books. That is bad news for people behind on paying their taxes. They are likely to find themselves under more pressure to pay up.”
“People struggling with their finances should bear in mind that their chances of a positive resolution are greatly increased if they take action early and come to an arrangement with their creditors. Ignoring the problem and hoping it will go away will always lead to the worst outcome.”
*Source: Insolvency Service