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Interest rates rise could spark rise in bankruptcies; Warning that more needs to be done to counter personal debt boom.

Byline: Sion Barry

ANY rise in interest rates aimed at countering the boom in personal debt is certain to fuel a fresh wave of personal bankruptcies, accountancy practice Grant Thornton warned yesterday.

Total lending to individuals in the UK grew by pounds 10.7bn, or 1.2% of total lending in September 2003, pounds 1.4bn higher than the rise in August, according to the latest statistics issued by the Bank of England and analysed by Grant Thornton.

Secured lending grew by pounds 8.8bn while consumer credit grew by pounds 1.8bn.

'These figures, which represent the highest total since the Bank of England began releasing them 10 years ago, go hand in hand with rocketing levels of individual bankruptcies which are at their highest since 1994,' said Richard Hawes, personal insolvency expert at Grant Thornton's Cardiff office.

He added, 'The second quarter of 2003 saw 8,662 individuals declare bankruptcy, a rise of 14 % compared to the same time last year, an average of almost 100 per day.

'Looking at the figures, it is clear that levels of personal debt in the UK are spiralling at such a pace that for some it is out of control.

'The general expectation is for a rise in interest rates next month as a way of countering the debt boom.

'Whilst there are some good arguments for a rise, from a personal insolvency point of view an increase in interest rates will lead, in the short term, to an increase in the number of people becoming bankrupt, and only a reduction in the overall amounts of personal debt after a longer period of time.'

Mr Hawes said an increase in interest rates would lead to higher payments on debts and to a possible reduction in house prices which, representing the most valuable asset of many people, could force greater numbers over the brink of solvency.

He added, 'An increase in interest rates cannot be the sole answer to counter the debt boom.

'More stringent guidelines need to be implemented within the financial services industry to ensure that loans are only given to those that can realistically repay them.

'Even more stringent regulations ought to apply on unsecured loans.

'A more comprehensive educational drive must also target those individuals that lack financial prudence and regard voluntary bankruptcy as a way to wipe the slate clear of crippling debts, and will continue to do so following the introduction of user-friendly legislation introduced by the Government.'
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Nov 4, 2003
Words:412
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