Focus On Lenders As Insolvencies Rise

By David Field -

As the number of people being declared insolvent continues to rise, attention is being turned to lenders to be more responsible when it comes to letting people borrow money.

New figures from the government's Insolvency Service show that a record 27,644 people in England and Wales went bankrupt or entered into individual voluntary arrangements (IVAs) with their creditors between July and September this year.

This is 55 per cent more than the same period last year and according to experts highlights the growing problem of personal debt in Britain.

Indeed the headlines are dominated by the apparent never-ending rise in debt levels among British consumers. Figures from market analyst Datamonitor show that UK consumers have twice the average personal debt of the rest of Western Europe, owing £3,008 each in unsecured debts such as personal loans, credit cards, and overdrafts.

These debt problems were further exacerbated in August when the Bank of England raised interest rates from 4.5 per cent to 4.75 per cent. With rates widely expected to be hiked again this month, from 4.75 per cent to five per cent, the number of people declaring bankruptcy could rise further as their debts become even more unmanageable.

Rising interest rates can be a particular problem for homeowners, especially those with tracker mortgages. Figures from the Department for Constitutional Affairs show that since interest rates went up in August the number of homes being repossessed as mortgage holders fail to meet their loan repayments has risen by 15 per cent.

As a result of the increasing debt pressure consumers are under, lenders are being urged to do more to ensure they are lending to the right people. Critics argue that banks and credit card providers are being irresponsible and are often lending to people who cannot afford the repayments, which is exacerbating their debt problems.

Chris Tapp, associate director of Credit Action, agrees that lenders need to do something to stem the rise in bad debt. "I wouldn't say that we should be simply looking to blame the lenders for the situation, but they could certainly do more in trying to make sure that people they are lending to are in a position to pay them back," he said.

But it is not just lenders that should be acting more responsibly when it comes to loans and mortgage products, some experts say. Consumers too should take control of their own borrowing and only go for loans and mortgages they know they will be able to pay back, even in the event of a financial emergency.