Economic Crisis

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Personal Bankruptcies Increase and Borrowers Walk Away from Homes

Repossessions soared by more than half last year and the number of people seeking bankruptcy surged to a record high as the deepening economic gloom took its toll.

As many as 40,000 borrowers were evicted from their homes after falling behind with mortgage payments last year, up 54 per cent from 25,900 in 2007, and the highest level since 1996, figures from the Council of Mortgage Lenders (CML) showed.

In a further sign of the desperation being felt by thousands of borrowers, the CML reported a surge in the number of properties being abandoned.

The number of repossessions was more modest than the CML's forecast of 45,000 but the lenders' organisation said it had not changed its forecast for 75,000 this year despite several government schemes to help borrowers.

Sue Anderson, a CML spokeswoman, said: "The schemes will be helpful but homeowners are now facing unemployment rising at a much faster rate than anticipated."

The number of homeowners in arrears soared by 70 per cent, with 219,000 borrowers falling three or more months behind with their payments, up from 127,500 at the end of 2007.

Separate data from the Ministry of Justice showed that nearly 56,000 people applied to become bankrupt through the courts last year, up from about 53,000 in 2007 and the highest number since comparable records began in 1995.

Lenders have reported an increase in borrowers moving out of their homes without warning or handing back keys to their lender in the hope that they could walk away from their debts. "We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions. Borrowers are still liable for their debt, even if they leave the property," Michael Coogan, the director-general of the CML, said.

The number of lenders seeking repossession orders slowed in the final three months of last year. The Government claimed the drop was a result of a new, more rigorous court process for lenders wishing to repossess properties that was introduced late last year, but lenders themselves indicated that the number of claims fell simply because they were growing used to the new system.

New evidence of the impact of the recession on companies also emerged yesterday as official figures showed that company winding-up petitions jumped by 18 per cent in the final three months of last year compared with the same period the year before. This indicates that the number of companies going to the wall, which jumped by 50 per cent in the last quarter of the year according to figures released by the insolvency service this month, are set to rise again.

Companies are not only struggling with slumping demand but are falling into difficulties as their access to bank finance is curtailed. The Bank of England said yesterday that it had bought £340 million in commercial paper - short-term IOUs from companies - in the first week of its asset purchase scheme to help to improve liquidity in the markets.

Lord Mandelson, the Business Secretary, said yesterday that in the five weeks since the start of the enterprise finance guarantee scheme, the Government had agreed to underwrite 400 bank loans to small and medium-sized companies, worth more than £1 million a day. More than £1 billion was still available for "viable" small businesses, he added.

Retail sales unexpectedly rose last month as shoppers took advantage of big postChristmas sales on shoes and clothes, but the outlook for the high street is grim, experts say.

The volume of sales rose 0.7 per cent in January, taking the annual rise to 3.6 per cent, official figures show. Clothing, textiles and footwear sales rose 6.1 per cent, but the scale of the discounts was laid bare as the figures showed the value of sales for nonfood stores dropped by 1.6 per cent.

Analysts expect sales to deteriorate in the coming months as consumers conserve their cash.

SOURCE: http://business.timesonline.co.uk/tol/business/economics/article5776483.ece

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