Thrifty Loans

Christmas spending sprees will boost the number of individual financial casualties in the first quarter of 2008. According to accountants Grant Thornton there will be an extra ten thousand people who go bankrupt or enter into an individual voluntary arrangement (IVA) in the first three months of the year, boosting the number to 28,000. The firm also believes that there will be 120,000 bankruptcies in 2008, a figure which will be nearly 10,000 up on last year.

Although the Bank of England reduced interest rates by a quarter percent in December to 5.5%, this has not had much of a beneficial impact on consumers as many providers have not lowered their rates on credit cards, loans and overdrafts. Many have not cut their mortgage rates either, and there are growing concerns for the 1.4 million householders who are due to come off fixed rates in the next 12 months, and could be left paying over the odds. Instead, banks and building societies have held on to what they can get to boost their cash flow and profits.

Many homeowners will have to switch to more expensive deals when their current one runs out, and could find £200 a month added to their payments. Some considered as a high risk might see their repayments rocket by £600 a month.

Head of personal insolvency, Mike Gerrard, 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.”

Other household bills are also expected to rise: food, power and petrol. Mr Gerrard believes these will take their toll. He said: “Take for example fuel prices. In only 12 months the cost of filling up a vehicle with unleaded petrol has increased by 16%, which means Joe Public is now having to find an additional £155 this year to fill up the car. Together with increasing gas and electricity prices, which are forecast to jump by more than 10% early this year, it’s easy to see how those already struggling to pay off credit are caving in to the pressure.