Friday, February 03, 2006
Debt strains
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

Figures just released show the following:

There were 20,461 individual insolvencies in England and Wales in the fourth quarter of 2005 on a seasonally adjusted basis. This was an increase of 15.0% on the previous quarter and an increase of 57.1% on the same period a year ago.

There were 3,187 company liquidations in England and Wales in the fourth quarter of 2005 on a seasonally adjusted basis. This was a decrease of 5.5% on the previous quarter and an increase of 8.5% on the same period a year ago.

The number of properties taken into possession by mortgage lenders rose to 5,630 in the second half of 2005, according to figures released today by the Council of Mortgage Lenders. This was 22% higher than the 4,620 in the first half of the year, but still extremely low by historical standards - the peak half-yearly figure was 38,930 in the second half of 1991.

The total number of repossessions in 2005 was 10,260. This was 70% higher than in 2004 - although still the third lowest annual figure since 1983. The number of mortgages in arrears of 3-6 months rose to 59,700 - up 3% compared with the end of the first half of the year, and up 11% on the end of 2004.

The number of 6-12 month arrears cases rose to 32,470 - 3% higher than in the first half of the year, and 21% higher than at the end of 2004. The number of mortgages more than 12 months in arrears rose to 13,820 - 10% higher than in the first half of the year, and 23% higher than at the end of 2004.

Debt is biting, though from a low base. When should we start to worry?

Comments

"debt is biting, though from a low base"

I don't think that this is what you meant. Debt is high, not low,, although the problems caused by it (bankrupcy, mortgage arrears, etc.) are rising from a low base.

However, I suspect that the rise in problems servicing debt are not the big issue. Historically low interest rates have allowed people to increase the amount of debt they have taken on, as servicing costs are lower - and the resulting spending has provded a huge boost to the economy. But this is no free lunch - interest rates are low because inflation is low and this means that the value of the debt is more slowly eroded than in the past, so people are stuck with debts for longer. Because people are stuck with the value of the debt for longer, this means that there is less scope for increasing borrowing again, so spending will be constrained for a long time. This will act as a drag on the economy.

The government has not banished the 'boom-bust cycle' as it would have us believe. The cycle has just been flattened and extended in time.

Posted by: HJ at February 3, 2006 05:50 PM

Yes, precisely, excuse the short-cut in my use of language. Debt problems - repossessions, arrears, etc - are rising but from a low base. I agree with the point about a prolonged drag on spending.

Posted by: David Smith at February 4, 2006 10:32 AM
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