More Britons than ever crumble under debt

More Britons than ever were unable to pay back their debts and tens of thousands faced the threat of losing their home in the first quarter of 2006 as the nation's trillion-pound debt mountain claimed even more victims.

Consumer insolvencies in England and Wales leapt 73 per cent on a year ago to a seasonally adjusted 23,351 in January to March, the Department of Trade and Industry said.

That was up 13 per cent on the previous three months and the highest quarterly total since comparable records began in 1960.

Economists were downbeat about the prospects for Britons getting their finances in order and said the latest jump bodes ill for retail sales, which put in their weakest performance in a year in the first quarter.

"With unemployment rising and debt levels at record high levels there is a very real danger that individual insolvencies and mortgage repossessions will climb markedly further over the coming months," said Howard Archer at Global Insight.

"The continuing need for many people to improve their personal financial situations will be a significant constraint on consumer spending for some time to come."

In a further sign that hefty borrowing is taking its toll, other government data showed a 57 per cent jump in the number of court orders to repossess homes in England and Wales in the first quarter.

Borrowing costs at their lowest in a generation and booming house prices have encouraged British households to rack up more than a trillion pounds of debt in recent years.

But a series of interest rate hikes from the Bank of England between November 2003 and August 2004 and a property market slowdown last year has stretched already tight household budgets.

Last August's quarter-point rate cut to 4.5 per cent seems to have done little to alleviate the burden and a stream of robust economic data recently has raised speculation that the move will soon be reversed and add to households' financial distress.

Analysts had expected a surge in the number of people crumbling under debts in the first quarter as Christmas spending sprees worsened their already precarious financial position.

The National Debtline charity said in January it was receiving 1,000 calls a day from people in financial difficulty, a 30 per cent rise on a year ago. Insolvencies have been hitting record highs quarter after quarter in Britain. Experts blame easily available credit, a lack of government publicity on the need to save, changes to bankruptcy rules and a culture of indulgence spending.

"We are paying the price for a spend now, worry later culture," said Pat Boyden, partner in the Business Recovery Services practice at accountants PricewaterhouseCoopers LLP.

"Some people are now so in debt that they are using credit to buy everyday items like groceries and possible interest rate rises could worsen the situation further."

High street banks have so far said their bad debts are manageable but ratings agency Fitch described the UK credit card market as under stress in a report. And companies do not seem to have been immune to Britain's over-indebted culture in the first quarter. The DTI said company liquidations rose 7.6 per cent on the quarter, having fallen the quarter before, and jumped by 17 per cent on the year to 3,439.

But some insolvency advisers said there were tentative signs households may be mulling an end to their buy now pay later ways as they crumble under double-digit credit card interest charges.

"People are getting sick of carrying unsecured credit," said Louise Brittain, personal insolvency head at accountants Baker Tilly. "Retail spending is down in the first quarter, saving is up and secured lending is up."

She predicted a total of 100,000 insolvencies this year.

"But the rate will then slow. At some point there is only so much credit people can take on."