LONDON (Reuters) - Excessive spending over Christmas will fuel personal bankruptcies in the first three months of the year, a report says.
Chartered accountant Grant Thornton predicts that 28,000 people will become insolvent in the first quarter of 2008, a third of whom are expected to file for bankruptcy as a direct result of debt racked up over the festive period.
Mike Gerrard, head of its personal insolvency practice, said: ”Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells.
“Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out.”
The number of personal insolvencies during the first quarter is expected to be slightly down on the same period last year, but personal debt woes are expected to worsen as banks continue to tightening their lending criteria, the housing market slows and rising commodity costs begin to bite.
Tighter lending conditions could add pain to consumers already mortgaged to the hilt -- outstanding housing debt stands at more than a trillion pounds -- and household finances look set to be stretched further by rising food and energy costs, as wages fail to keep pace with inflation.
Retail gas and electricity prices are expected to rise up to 20 percent in the first half of 2008, as providers pass on an increase in wholesale costs.
A total 1.4 million people will also see their cheap, fixed-rate mortgage deal end in the early part of the year, and each will be forced to pay an average of 200 pounds per month more to meet the cost of servicing their home loans.
Against this backdrop, Gerrard believes it is “easy to see how those already struggling to pay off credit, particularly those servicing mortgages, are caving in to the pressure”.
Around 10,000 people per month are likely to become insolvent in 2008, according to the Insolvency Service.
That would continue a rising trend: personal insolvencies topped 100,000 for the first time in 2006 and the 2007 figure is expected to come in at 110,000.
Gerrard says the recent quarter point drop in interest rates will do little in the short term to prevent rising insolvencies.
“Personal insolvency numbers will move forward at a much faster pace than anticipated,” he adds.
”While they may settle down before next Christmas, they will do so having edged closer to a total of 120,000 personal insolvencies for 2008.
“With the credit crunch yet to fully bite, there are simply not the conditions in place to expect a drop.”