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British homeowners are increasingly turning to Individual Voluntary Arrangement (IVA) deals offered by debt management companies to help them avoid bankruptcy.
High-placed figures within the debt management field have suggested that the market will continue to experience boom through 2008 with the increasing numbers of householders who find themselves saddled with rising levels of debt.
IVAs allow debt-ridden consumers to avoid bankruptcy by agreeing to a repayment plan, usually at a lower monthly rate.
TDX, who process new IVA applications for banks and other creditors, have revealed a 32% rise in the number of people entering into IVA agreements between January and May. They estimate that £2.2bn is now repaid through voluntary debt agreements each year.
Previously the vast majority of people who took out IVAs were living in rented accommodation but 2008 has seen a dramatic increase in the number of homeowners applying. Homeowners accounted for 38 per cent of IVAs in May, a jump of 47 per cent on the January figure.
Rising household costs are partly to blame, TDX said. However, tighter lending practices from banks and building societies have also contributed as borrowers find it increasingly difficult to remortgage.
Mark Onyett, chief executive of TDX, said: “We anticipate that the number of new IVAs opened in England and Wales will continue to increase in 2008. The rising cost of living is not the only reason for this growth. More expensive mortgages help explain why more homeowners are taking out IVAs.”
The UK Insolvency Helpline recently reported a surge in the number of people enquiring about IVAs, due to a fall in property prices, it claims. This comes in weeks after it was revealed that a number of firms have been censured by the Office of Fair Trading (OFT) for making misleading claims about the benefits of IVAs. According to the BBC:
“The firms have been sending unsolicited letters advising recipients to cancel their individual voluntary arrangements and to go bankrupt instead.”
The OFT warned people not to follow the mailings advice and that scrapping IVAs could damage peoples solvency.
TDX has said that the speed at which the market has grown may be affecting costs for the consumer:
“This rapid growth has resulted in lots of inefficiencies that add significant cost to the process, increase losses for creditors, restrict the accessibility of IVAs for debtors and ultimately make it more difficult for these debtors to get the best advice.”
According to the London Daily News, an average of 50 people per borough in the capital went bankrupt in 2000, which by last year had risen to 201, with a total of 6,632 people filing for bankruptcy.
Boroughs such as Barking and Dagenham, Waltham Forest, Lewisham and Lambeth have seen increases of over 300%.
Even this figure it has been warned, is underestimating the potential number because it doesn’t include figures from the current credit-crunch.
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