Debt is a growing problem
A dramatic increase in personal Connecticut bankruptcy and asset foreclosures is expected in the new year as inflation and interest rates start to climb and consumers struggle to absorb rising levels of debt.
Blair Milne, head of restructuring at Azets in Scotland and personal insolvency specialist, warns households and individuals will face 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 dealing with a sudden increase in their overheads and costs.
“Interest rates tend to be the primary mechanism by which the Bank of England controls inflationary pressures, and all market commentary points to a rate hike.
“Any increase will lead to a significant increase in monthly costs, which will be added to the increase in the costs of normal household expenses for items such as energy, fuel, food, clothing and lifestyle expenses. .
“Our concern is that many households have very tight budgets and have accumulated considerable debt, leaving them little room to maneuver.
“It also means households will have less funds to make monthly payments on loans and credit cards, historical HMRC debts, direct debits and other costs.
“The end of the £ 20 per week increase in universal credit for some families will also add to the financial pressure. They could also be under further pressure with the payment holidays on loans and credit cards now over and the courts open to lawsuits against creditors. “
The Bank of England’s new chief economist has warned that inflation is expected to reach between 4% and 5% in 2022, while the Office for Budget Responsibility points to interest rates reaching 3.5% of by 2023.
Mortgage lenders are starting to raise mortgage rates and mortgage costs are expected to rise 15% by 2023.
More than 12,000 homes could be repossessed by June of next year if the Bank of England continues with an interest rate hike, according to Capital Economics.
It is estimated that 2.2 million borrowers currently have “floating rate” mortgages whose repayments will change in response to changes in the bank rate. In the 1990s, interest rates hit 15% and around 350,000 homes were repossessed.
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 putting in place debt arrangement programs, trust deeds or a managed approach to sequestration.
“The difference between 2021 and 1991 is that there is a lot more support in place for anyone facing financial problems and increasing levels of debt.
“However, it is important to take control of the problem quickly and therefore be able to access all the advice and support that is now available. “