The number of people becoming insolvent in the UK is on the decrease, although some commentators believe this could merely be the calm before the storm.

The number of UK personal insolvencies dropped by 3% between July and September on the previous three months, with 26,072 individuals entering into bankruptcy or an Individual Voluntary Arrangement. The figures are also down on the same period last year, according to a report by the Government's Insolvency Service.
However this could just be a momentary reprieve before the effects of the summer's credit crunch begin to move beyond the corporate world to impact on consumer confidence, according to business adviser Grant Thornton.

It believes this, in conjunction with the possibility of future interest rate rises, could have a marked impact on the number of personal insolvencies nationwide.

Its head of personal insolvency Mike Gerrard said: 'In spite of relatively benign economic conditions over the past decade, personal insolvencies have gone through the roof and this recent drop is simply the calm before the storm as the credit crunch begins to bite beyond financial markets.'

The slowdown in the amount of people seeking IVAs may be due to changes within the debt management industry and not necessarily due to changes in people's spending habits, Grant Thornton added.

More IVA providers are using informal debt arrangements for their clients and others are cutting back on the IVAs they offer due to tighter credit restrictions and higher marketing costs.

New figures from the Ministry of Justice released today show that the level of house repossessions are stable. Other statistics from debt consultancy Thomas Charles show that one in four Britons will cut back on their credit card spending this Christmas.

However the total amount of UK personal debt exceeded UK GDP for the first time ever in September, Grant Thornton discovered recently, and this is not helped by the growing number of people using their credit cards to make mortgage repayments.

Gerrard added: 'We are seeing an increasing number of individuals turning to their credit cards to make mortgage payments. Using credit to pay off credit is a precarious balancing act performed on the thinnest of wires, and it only takes some missed payments and a switch from a fixed to variable mortgage interest rate to send these individuals into a downward spiral.'


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