Azets: Echoes of 1990s as wave of personal insolvencies likely



Next year is likely to see a dramatic rise in personal bankruptcies and asset repossessions as inflation and interest rates begin to climb and consumers struggle to absorb rising levels of debt, Azets has warned.

Blair Milne, head of restructuring with Azets in Scotland

The Bank of England’s new chief economist has warned that inflation is likely to reach between 4% to 5% during 2022 whilst the Office for Budget Responsibility is pointing towards interest rates reaching 3.5% by 2023.
Mortgage lenders are beginning to increase mortgage rates with mortgage costs set to rise 15% by 2023.

More than 12,000 homes could be repossessed by June next year if the Bank of England follows through with a rise in interest rates according to Capital Economics.

An estimated 2.2 million borrowers currently have “variable rate” mortgages whose repayments will change in response to a changing Bank rate. In the 1990s, interest rates reached 15% and around 350,000 homes were repossessed.

Blair Milne, head of restructuring with Azets in Scotland and an expert in personal insolvency, is warning that there are clear signs that households and individuals will be facing significant increases in the cost of living, and debt levels.

He said: “Interest rates have been so low for so long that there is a generation of consumers inexperienced in managing a sudden rise in their overheads and costs. Interest rates tend to be the main mechanism by which the Bank of England controls inflationary pressures, and all the market commentary points to rising rates.

“Any increases will mean a significant jump in monthly costs, which will be on top of rising costs for normal household expenditure for items such as energy, fuel, food, clothing and lifestyle expenditure. Our concern is that a vast number of households are running very tight budgets and have accumulated considerable debt, leaving them with little room for manoeuvre.

“This also means that households will have less funds to make monthly payments towards loans and credit cards, historic HMRC debts, direct debits and other costs. The end of the £20 per week uplift on universal credit for some families will also add to the financial strain. They could also be under further pressure with payment holidays on loans and credit cards now finished and the courts open to action from creditors.

Blair Milne urged anyone concerned about their debt to tackle the problem as soon as possible by reviewing their finances and taking early advice.

“There are a number of options available, including setting up Debt Arrangement Schemes, Trust Deeds or a managed approach to sequestration. The difference between 2021 and 1991 is that there is far more support in place for anyone facing financial problems and rising levels of debt. It is, however, important to take control of the problem quickly and therefore be in a position to access all the advice and support that is now available.”

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