November 27, 2007 | posted by Michael Baxter in IABN |

So how serious do you think debt is? Yesterday, PricewaterhouseCoopers deposited its pennyworth into the debate.

And its findings: this year the average adult now owes £33,000, compared with £17,000 in 2000.

It says, “Households have already stretched their borrowing capacity. Their finances will be further tested as many households that are currently benefiting from fixed-rate mortgage deals could see their average monthly mortgage repayment increase by around £140 if they do not re-finance their debt: this will put further pressure on default levels and could have an impact on consumer spending.”

Richard Thompson, partner at PricewaterhouseCoopers LLP, said, “There are tough times ahead for both consumers and credit card companies. Banks are continuing to take action in response to the rise in consumer debt by tightening their credit acceptance policies. Many consumers will find it increasingly difficult to obtain credit in the run-up to Christmas.”

The accountancy firm also reckons personal insolvencies could soar next year as a result of over-borrowing by consumers. It said, “While the trend in Individual Voluntary Arrangements (IVAs) has declined in recent quarters, this is partly due to a hold-up in the processing of IVAs due to ongoing fee discussions between banks and insolvency providers, as well as fairly flat levels of unsecured debt in the past two years. The expected increase in personal insolvencies next year could put further pressure on lenders’ bad debt charges.”

Actually, we would suggest that maybe the report has, if anything, understated the danger of a rise in insolvencies. A nasty disease has taken hold in the UK of late: borrowing to pay off borrowing. The disease has a cousin, a nasty virus which causes analysts and consumers to only take into account interest payments, and not capital repayments, when the affordability of a loan is calculated.

Next year the credit crunch and slowing housing market could exert a terrible double whammy on the UK. Borrowers will suddenly find it is much harder to get a top up on their mortgage in order to pay off other debts. This could lead to a much higher level of insolvencies not just in 2008, but in 2009 too.