Year on year increase in personal insolvency numbers expected

The number of people whose financial situation deteriorated so badly that they became insolvent is expected to have increased year on year in 2016 in official figures released on Friday.

Restructuring firm RSM said it expected to see around 90,000 people having entered personal insolvency in England and Wales across 2016, which would be an increase compared with 2015, when there were around 80,000 personal insolvencies.

The Insolvency Service will release the official figures for the final quarter of 2016 on Friday.

There are three official types of personal insolvency in England and Wales - bankruptcies, debt relief orders (DROs) and individual voluntary arrangements (IVAs). Bankruptcies tend to be seen as a "last resort" while DROs are aimed at people with lower amounts of debt that they cannot pay off. IVAs are agreements whereby money is shared out between creditors.

Low interest rates have been keeping borrowers' repayments relatively affordable, but with an uncertain economy ahead there have been signs of households starting to feel a bigger squeeze from rising living costs.

Office for National Statistics (ONS) figures showed the Consumer Price Index (CPI) measure of inflation jumped to 1.6% in December - the highest level in two-and-a-half years.

Recent Bank of England figures have also shown a strong growth in consumer credit, prompting charities to warn the figures should be ringing "alarm bells".

Mark Sands, a personal insolvency partner at RSM, said: "With record low interest rates and low unemployment, you might have expected a fall in overall personal insolvency levels in 2016.

"However, it's clear that there are a growing number of people who have been struggling with problem debt either as a result of a change in circumstance or because they have over-extended themselves."

Mr Sands said in his experience there had been a particularly large rise in the number of people entering into an IVA, which offered the opportunity to pay down debts over a five year period.

He said this "points to an increase in the number of people who have been treading water and trying to struggle on but who have eventually reached breaking point".

Mr Sands continued: "Unsecured credit is continuing to rise at pace which is beginning to cause some concern at the Bank of England.

"And with inflation likely to outstrip wage growth, things could get much tougher, particularly for those with little or no spare cash at the end of the month."

Maureen Leslie, president of the Insolvency Practitioners Association, and an insolvency specialist at mlm Solutions, also expected the figures to show around 90,000 personal insolvencies across 2016.

She expected growing numbers of IVAs would account for "pretty much all of the increase in total personal insolvencies from 80,000 to 90,000".