Britain braced for credit crunch

By Julian Knight
BBC News personal finance reporter

Concerns are mounting about rising debt levels

Not since the mid-1990s, as the last economic recession claimed its final victims, has so much debt pain been felt by so many people.

Debt charities and credit industry bodies have told BBC News that they have seen a surge in the numbers of

people unable to pay their bills.

At the same time, according to official figures nearly 26,000 property repossession orders were granted in the first three months of 2005, the highest number since 1995.

On Friday, the Department of Trade and Industry (DTI) revealed a sharp rise in the number of people going bankrupt.

In short, the UK's trillion pound debt hangover finally seems to be kicking in.

We are seeing lots of younger people coming to us for help Francis Walker, Consumer Credit Counselling Service

But unlike the credit crunch of the early 1990s, when homeowners had the fiscal life squeezed out of them by high interest rates and unemployment, this time it seems the young are in the firing line.

"We are seeing lots of younger people coming to us for help," Frances Walker, spokeswoman for debt charity the Consumer Credit Counselling Service (CCCS), told BBC News .

"They are often very heavily in debt as they have been able to borrow far more than in the past.

"The trouble is they have no assets, so when they get into difficulty they have nothing to fall back on."

As a result, Ms Walker said that CCCS's counsellors were advising more people to go bankrupt, many of them in their 20s and just out of university.

Overall, the CCCS reports that calls from people worried about debt are up 50% year-on-year.

Playstation overreach

So is the increasing debt problem just a disorder of the young, a sign of the Playstation generation overreaching itself?

Kurt Obermaier executive director of the Credit Services Association (CSA), which represents 230 debt collection agencies, points out that lenders are far more willing to lend to younger people than they used to be.

Young people are also growing up with debt - the average graduate leaves university more than £12,000 in debt.

"Certainly younger people are more blasé about borrowing. However, this doesn't completely explain the increasing number of debt cases our members are dealing with," Mr Obermaier said.

According to CSA members, they are being passed cases from High Street banks, credit card companies and utilities which indicates that the problem is a wider one, affecting more people than just the young.

"I think many people have spent too much on their homes and if something goes wrong in their lives, such as they lose their job, they can find themselves in problems very quickly," Mr Obermaier added.

Chill wind

CONCERNED ABOUT DEBT? National Debtline: A free, confidential and independent service funded by the Department of Trade and Industry and the credit industry. Tel: [phone] Business Debtline: Provides a free telephone debt counselling service for self-employed and small businesses, funded by banks. Tel: [phone] Consumer Credit Counselling Service: Funded entirely by the credit industry, the service offers advice to people in debt. Tel: [phone] Citizens Advice: Offers free, independent and confidential advice from more than 700 locations throughout the UK. Tel: [phone]

Looking at the wider UK economy there are strong signals that consumers are feeling the pinch.

High Street sales are poor - a sure sign that people are reining in spending - and the housing market is slowing.

Following five interest rate rises since November 2003, the number of properties changing hands each month has nearly halved.

Richard Gale, spokesman for debt charity National Debtline, told BBC News that the people calling his organisation for help had one thing in common - they were feeling the chill wind of economic slowdown.

"Interest rates have obviously had an effect in pushing up mortgage repayments but things in general just seem to be a little tighter for people.

"Small life changes - such as an employer cutting overtime shifts - can have a major impact.

"We are not in an early 1990s scenario yet but large numbers of people are living up to and beyond their incomes."