A recent study by KPMG has revealed some alarming reasons
regarding how and why arrears are rising. In “The Changing Face of
Debt” Juliet Coukham, principal advisor at KPMG’s FS Advisory
Practice, explains that at least 7 per cent of UK households
(around 2m) are currently in arrears with one payment on a
household bill or a credit commitment.
“Furthermore,” she says, “some 4 per cent of households are
spending more than 50 per cent of their gross income on total
credit repayments. And around 3 per cent are spending more than 25
per cent of their gross income on unsecured credit repayments –
while some 12 per cent of households have more than four current
outstanding credit commitments.”
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The result, she confirms, is that at least 3 per cent of UK
households appear to be experiencing serious difficulties in
meeting their credit commitments.
A changing demography of debtors
Research from the Consumer Credit Counselling Service (CCCS)
indicates that UK debt collectors will have to re-think their
collection procedures in the wake of changing debtor demographics
(see chart 1).
Chart 1: CCCS statistics suggest subtle changes in the profile
of debtors experiencing difficulties (2005-2007)
- More women – 53% to 56%
- More homeowners – 39% to 40%
- More single people – 51% to 55%
- More people without children – 56% to 57%
- More people aged 40 and over – 43% to 52%
- More people with low incomes (< £10k) – 21% to 31%
- The figures confirm that, compared to 2005, by 2007 the
percentage of women debtors had risen from 53 to 56 per cent of the
total. In addition, debtors who are homeowners had grown from 39 to
40 per cent and there had been a three per cent increase in
single-status debtors to 55 per cent.
There has been a significant (10 per cent) rise in low-income
debtors – from 21 to 31 per cent of the total and a sizeable (nine
per cent) increase in debtors aged 40 and over – 43 to 52 per
cent.
A mountain of debt
KPMG’s own data indicates that there has also been a significant
increase in the proportion of Individual Voluntary Arrangements
(IVAs) that are taken out by mortgage-owning debtors. (See
chart 2)
In September 2007 mortgage owners applying for IVAs were around
27.5 per cent of the total – a figure that has risen to 47 per cent
by September 2008.
Coukham stresses: “There are a number of reasons why more IVAs
are being entered by mortgagees. Firstly, mortgage holders are
becoming less able to juggle multiple debts whilst changes in the
mortgage market have created especial difficulties for mortgage
holders. At the same time it has become more socially acceptable in
recent times to admit to debt problems and to seek help.”
The re-mortgaging of house loans has traditionally been used as
a remedy for over-indebtedness. However, the steady and progressive
increases in mortgage rates over the past two years coupled with
the current credit crisis have led to far fewer re-mortgage loans
being taken out (See chart 3). Similarly, there is
evidence that consolidation loans by unsecured lenders are becoming
a thing of the past.
Equally alarmingly, figures from the Council of Mortgage Lenders
(CML) show that both the number and percentage of repossessions of
house has been rising steadily over the last five years, (See
chart 4) escalating most rapidly during 2008.
At the end of the first six months of 2004 there were slightly
fewer than 4,000 home repossessions – a figure that spiralled to
18,900, (up 48 per cent on the preceding year) in the first half of
2008. The number of households falling three months or more behind
on mortgage payments is also spiralling upwards, rising to 155,600
in the first half of the year from 129,600 last year.
The CML is forecasting 45,000 re-possessions this year, double
last year’s figure. Although these numbers are still small when
seen in the context of the 11.74m mortgages in the UK, as one motor
lender says: “A house purchase is any consumer’s largest purchase,
followed by the car which is second. Most debtors will endeavour to
keep a roof over their head as a top priority – even if payment on
the car has to go by default.”
