Recently published Government debt statistics have shown a rise in the number of people with serious debt problems. Could this be a sign of things to come?
The recent government statistics showing the number of people who became officially insolvent in the second quarter of 2011 were released this month.
After a year where formal insolvencies have been falling, the number of insolvent individuals in quarter two 2011 was 12% lower compared the same quarter in 2010.
However, importantly the figures have shown a change in the past year’s trend. In quarter two the number of officially insolvent people has risen for the first time in a year with rising numbers of people carrying out individual voluntary arrangements and debt relief orders.
Why have numbers of debt problems fallen recently?
Over the past year, there has been much talk about difficult economic conditions. The cost of living has been increasing and wages suppressed. As such it may come across as surprising that the number of people with serious debt problems has been falling. There are a number of suggestions why this could be the case.
A key factor is low interest rates which have been at the 0.5% level for over two years. Low interest rates have keep mortgage payments at an unprecedented low for hundreds of thousands of home owners. Without this cushion it is almost certain that more people would have faced greater financial difficulty.
Another factor is that the full affect of the recent government cuts is yet to take hold. Cut backs will lead to job losses over the next year and it is not at all clear that the private sector will be able to take up the slack.
If large numbers of people lose their government jobs but are then unable to find work, they will certainly start to struggle once redundancy payments have run out.
Are debt problems likely to continue to get worse?
Although the number of formal personal insolvencies has increased, the increase quarter on quarter at just over 1% is relatively small. It is therefore reasonable to argue that we should not jump to conclusions about an imminent turn for the worse in personal finances.
However with a current growth rate of under 1% and inflation nearing 5% it is likely economically things are not going to get better any time soon.
Thankfully it seems unlikely that interest rates will rise in the near future so home owners will continue to be protected. However the impact of Government cuts is very real and will start to cause financial problems for many.
There is also a concern that some people are currently using savings to supplement their income. Where this is the case, once those savings run out, financial difficulties will start to increase.
Given these circumstances, it is my view that we will start to see further increases in the numbers of people struggling with their debts. The need to provide the right debt advice and solutions in a timely manner t those who are struggling will therefore continue to be vitally important.
