Record numbers of people will become insolvent over the next two years, an accountancy firm predicted yesterday.

KPMG said at least 130,000 will become bankrupt or take out an Individual Voluntary Arrangement this year.

An IVA is a legal agreement that creditors will not take insolvency action while a debtor pays what he can afford for an interim period. About two-thirds of those who enter into an IVA are homeowners.

KPMG predicted that the first three months of 2009 will see a record-breaking 40,000 debtors taking out IVAs or going bankrupt - 10,000 more than in the same period last year.

Mark Sands, a director of personal insolvency at KPMG, said rising mortgage costs will tip many families over the edge.

Lenders have raised their rates by up to 0.75 per cent, despite the Bank of England cutting the base rate by 0.25 per cent.

With the average mortgage standing at £158,000 and energy and food bills rising at an inflation-busting pace, many families will need to pay out at least £2,000 more a year to avoid going under.

Figures for insolvency in January to March this year, due out next Friday, are expected to show a small fall in the number of personal insolvencies.

But experts said yesterday that this is only a temporary respite. Sarah Nancollas, from debt advisers Nancollas Greer, said: 'We believe that more people will come under severe pressure with their finances because of the added pressure of increasing mortgage payments and rising utility charges.' ˜ Economic growth fell to 0.4 per cent in the first quarter of this year, preliminary figures show. In the same period last year it was 0.7 per cent.

This suggests Chancellor Alistair Darling will not meet his forecast of 2 per cent growth for 2008, outlined in last month's budget. Jonathan Loynes, of forecasters Capital Economics said: 'This marks the start of a deep and prolonged slowdown.'


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