Bankrupt Scotland

From an editorial in The Herald

Although it is traditionally people on the lowest incomes who get into debt they cannot repay, the boom in consumer credit, fuelled by rising house prices, has brought many middle-class families to the point where they are only a couple of pay packets away from not being able to meet their repayments. It only takes one setback, such as their marriage ending or losing their job, to plunge them into unmanageable debt.

The 14.5% increase in the number of Scots being declared bankrupt between 2006 and 2007, however, is likely to be a harbinger of worse to come. The scale of the situation is brought home by the fact that the 1563 Scots declared bankrupt in the last quarter of 2007 amounted to nearly twice the average number for any three-month period three or four years ago.
This is a reflection of the record levels of personal debt (one estimate of Britain's debt from credit cards, loans, overdrafts and mortgages is £1.35 trillion) but when that level of borrowing collides with the current credit crunch, these personal disasters will be multiplied. That is expected to happen later this year as fixed-rate mortgages reach the end of their term and require to be renewed, with lenders imposing higher rates to reflect the overall increase in interest rates since August 2006.

There can be no doubt that the tide of debt is rising alarmingly. Home repossessions leaped by 30% in the first six months of last year and householders in Scotland cannot necessarily rely on the relative stability of the housing market north of the border to protect them from the perils of negative equity. Both Motherwell and central Glasgow have been pinpointed as high-risk areas on the latest map produced by the credit reference agency Experian.

With Scottish companies failing at a rate of approximately 55 per month and the Financial Services Authority describing 840,000 mortgages as a cause for concern, the outlook is particularly grim.

In Debted to Capitalism

Researchers have found that, by the age of 50 years and 90 days, the typical adult will shake off the shackles of debt. In Scotland, debt-free status comes at an average age of 49 years and six months . To pay off their debts, people use a mixture of salary, inheritance, windfalls and profits from investments.

Until then, the average Briton is in debt to the tune of £10,306. Men are deeper in the red, with debts totalling £12,631, while the average woman owes £7,982, excluding any mortgage.

"There are a lot of people in a cycle of debt. They're paying for credit over ten to 15 years, which means they may not pay it off until their retirement." Stuart Glendinning, the managing director of Moneysupermarket.com said .

A spokesman for Your Money Matters said: "As the cost of living continues to rise, we're being forced to save through our twenties and delay the major milestones of life until our thirties. On top of that, the average cost of a house is now well over £200,000 so we're not even getting on the housing ladder until 34. All of this and the average UK salary is just £25,986 for men and £20,488 for women, so it's no surprise that the majority of us are hitting our fifties before shaking off the shackles of debt."

Personal debt increases

Over 8 million British adults are in serious debt and over 2 million are struggling with repayments. 18% of adults in Britain are in £10,000 or more of unsecured debt such as credit cards, overdrafts, loans and store cards .The number of bankruptcies rose by 10 per cent in the first quarter of 2007 compared with the same period in 2006. Around 420,000 people were prosecuted for defaulting on loan repayments in the first six months of this year - up eight per cent on 2006. Scotland was revealed as the area with the highest proportion of indebted residents .

The Bank of England has raised the cost of borrowing five times in the past year to 5.75 percent -- the highest level in six years. Analysts expect another rise to 6 percent by the year end . High levels of unsecured debt are clearly linked to the rise in interest rates over the last 12 months . The record rise in house prices -- especially in London and the south-east -- has led to a growing discrepancy between mortgage payments and salaries. The high pressure to maintain social and commercial status often goes hand in hand with high expenditure on the high street. Borrowers affected by the higher interest rates now are storing up debt problems for the future; instead of making cuts in their personal expenditure, they are taking on further unsecured loans and credit cards .

See here about the bubble bursting