Personal insolvencies hit a record high in the first three months of 2010, rising 17.9% to 35,682 against the same period last year. Coupled with a drop in house prices and the uncertain election results, we could be in for a summer of economic gloom. Let’s hope the sun keeps shining anyway…
To be fair, the house price fall recorded by the Halifax survey was a very modest 0.1% in April. But coming as it does after a 0.5% rise in March the news rather scotches the line that the housing market might be undergoing a sustained recovery in prices. Given the other less-than-encouraging macroeconomic data around, that interpretation always looked pretty rose-tinted to us, anyway.
A more plausible prospect is that prices will remain pretty flat overall, with widespread regional fluctuations. Volumes (and thus market liquidity) will remain fairly low, with the consequence that supply and demand effects will create lots of local ups and downs. Which may actually be for the best anyway – a big rise in house prices would just add to the pressure on inflation at the moment.
As far as the insolvency numbers go, there is some better (or at any rate less bad) news in the detail. Although the annual rise was substantial, the rise from the end of 2009 was modest – only 108 more cases – so the rate seems to be tailing off. Even better, the number of businesses going bust declined sharply, down 4% to 4,196.
On the face of it, more personal insolvencies is clearly bad news, driven largely it seems by the continuing rise in unemployment. If you lose your job and are already badly in debt – even if you have already made arrangements to pay creditors back – insolvency may be the best option.
It’s also possible that the rise – especially in Debt Relief Orders for smaller debts of less than £15,000 – is partly a result of a change in cultural attitudes towards debt. The social stigma to going bust seems to be evaporating as more and more of us adopt default as the, er, default option to serious debt.
Your Mum might not like the idea much, but in a world where financiers and big businesses appear to be able to dodge taking responsibility for their own debts, it seems that a growing number of individuals are taking a similarly relativistic approach to their own owings.
All those extra people with bad credit histories aren’t going to find it easy to do their bit to help the housing market though, unless the mortgage companies start to adopt a similarly ‘live now, don’t pay later’ approach. And we all know what happened the last time they did that, don’t we?
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