Credit Crunch Affecting Consumers

Consumers are feeling the credit crunch squeeze as the scale of individual debt soars.

Home repossessions and individual debt are set to soar as a result of the credit crunch impacting on consumers throughout the UK. According to the Times newspaper, collectively Britons owe more than £1.3 trillion and millions of homeowners are struggling with mortgage and loan repayments. Debt management and debt solutions - such as individual voluntary arrangements (IVAs) - are fast becoming a priority to UK consumers.

Credit crunch hits consumers hard

In 2007, house repossessions rose by 21% indicating the extent the credit crunch has had on consumers throughout the UK. What started in the American subprime market has rippled through economies throughout the world, including the UK. The UK's housing market is similar to America's with a substantial proportion of homeowners on what's termed as ‘sub prime' mortgages, where they've over borrowed beyond their means or income. It's these homeowners most in need of extreme debt solutions, such as IVAs or even bankruptcy.

Debt management – A priority

As well as the threat of repossession, the housing market is just one indication of what the Times dubbed as the UK's ‘deepening debt crisis'. According to the Bank of England, lending to individuals in the UK reached £1,409 billion by December 2007. This high level of debt leaves many at risk to insolvency; more people have to turn to debt management solutions such as an IVA agreement.

IVAs offer a way out

Other industry bodies have sent alarm bells ringing as more financial analysts predict a sharp rise in IVAs. The Financial Services Authority has said one million UK consumers have fallen behind on interest payments on their loans, with a further two million continuously struggling. The Times reports that an estimated two million households are experiencing a state of permanent debt. The credit crunch has put them increasingly at risk as banks and building societies tighten their reins. Not only is it harder to obtain loans and mortgages, it's increasingly expensive to be in debt. Debt quickly spirals out of hand, and many are expected to turn to debt management solutions, such as IVAs as a way out.

Individual voluntary arrangements will rise

IVAs help by allowing consumers to come to an agreement with their creditors to pay of a proportion of their debt, while writing off that which they can't afford. In 2006, it's thought UK banks wrote off a massive £6.6 billion of loans to consumers – a 20% rise on the previous year. The Insolvency Service that deals with statistics on bankruptcies and individual voluntary arrangements, say that the recent fall in individual insolvencies is feared to be a ‘blip' as debt continues to maintain its grip on the UK. The Times quotes one head of a personal insolvency firm saying: "Take no heart from this quarter's drop in personal insolvencies, they are merely the tip of the iceberg. From here on in it's going to be a rough ride for many individuals and the numbers going insolvent will rise."