Published in Debt Advice Features on Saturday, December 30 2006

Will this New Year See the “Straw that Breaks the Camel’s Back” with Debts?

It is being predicted by many that this New Year we will witness debts spiralling beyond the point of control. People owe more than ever, and the figures are only increasing despite attempts by the government to control it with solutions such as the Individual Voluntary Arrangement.

The problem now lies in the fact that people are either selling their homes or financing them to the maximum to pay their debts. However this affects the whole market in that house prices will drop, meaning people can no longer sell their property and clear their debts, and if they get behind with their secured borrowing, mortgage and secured lenders are rushing in to repossess the home. This has been witnessed before in the early nineties, where the fallout was seen in the number of homes repossessed, and the worrying fact is that the level of debt is even higher now than it was then. Britons now owe a staggering 1.3 trillion on secured and unsecured lending! It has been reported however by the Bank of England that the rate of borrowing has decreased during 2006.

Are we heading towards another recession? Well if debts get to their climax and credit can’t be borrowed any more, economic growth will fall or go into reverse. So yes a recession could hit us again.