UK personal insolvencies were down for the first time in almost six years last quarter. But the bad debt boom is far from over...

Personal insolvencies fell 8.1% last quarter compared with the first three months of 2007 as 26,956 individuals went bankrupt or kicked off an IVA ( an Individual Voluntary Arrangement is an agreement between a debtor and his or her creditors which freezes debt interest and slashes the repayment amount).

In other words, for the first time in nearly six years, fewer Britons have gone bust.

It's tempting to believe this might be the turning point for the British borrower. But also, probably wrong.

For one thing, the year's first quarter is, for many, debt hangover time after the Christmas and New Year max-out party. Personal insolvency is caused by unmanageable and worsening amounts of unsecured debt. People go through hoops to pay it off but many eventually throw in the towel. So why not start the New Year with a clean slate?

For another, the figures are still 4.2% up on the same quarter last year. And remember that there were almost as many personal insolvencies in the last quarter alone as in the whole of 2002. And a closer analysis of today's figures shows that the big fall (15%) was in IVAs, unlike bankruptcies which dropped just 3%.

Why? Because a number of the big creditors have been unhappy with the way that IVAs operate. They believe IVAs have been too 'debtor friendly' and have been taking a tougher standpoint.

The banks have recently been putting a positive spin on what they euphemistically call their 'impairment charges', i.e. the amounts of money they've lent, but won't be getting back due to debtors defaulting on loans. What the banks have been doing is tightening both their lending criteria and their attitudes to distressed debtors.

The IVA industry is currently working to sort out the issues of cost and supervision of this form of debt management. When the lenders become satisfied that these issues are resolved satisfactorily, IVA numbers are likely to take off again.

That's because there remains a huge unsecured debt mountain out there. £214bn of it at the end of June, to be precise. And it's causing more problems than ever before. Money monitor Credit Action tells us that Citizens Advice Bureaux debt advisors were 15% busier in January 2007 than in January 2006 and have dealt with 1.4m debt problems in the past 12 months. That's 11% up on a year ago and double the figure just eight years ago.

It also equates to 5,300 new debt problems a day. More than 160,000 people contacted the Consumer Credit Counselling Service (CCCS) in the first half of this year - an increase of 18.5% on the same period last year. According to research by the Conservative Social Justice Policy Group, British consumers are on average twice as indebted as those in Continental Europe.

Another equally worrying home truth emerged today: UK house repossessions have reached their highest level in eight years according to the Council of Mortgage Lenders (CML), with 14,000 Britons losing their homes in the six months to June 30, up nearly 30% on the same period a year ago. And yes, you've, guessed the reason. It's that sub-prime problem again, namely home loans to consumers with poorer credit ratings, but this time it's right here in the UK.

Whilst the CML insists that the repossession numbers are low by historical standards, until recently borrowing has been cheap. But as few mortgage holders need reminding, the cost of servicing your home loan is climbing. And with so many fixed-rate deals expiring over the coming months, a lot of sharply higher mortgage bills are on the way.

Already, mortgages in arrears in the first half of the year rose 4% to an estimated 125,100. As the full impact of higher borrowing costs feeds though the system, hitting mortgage borrowers whose disposable income is getting squeezed from all sides, home repossessions could soon be rising a lot higher.

As for personal insolvency, it was initially encouraged by softer, less stringent debt laws. Now it has a momentum all of its own.

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