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High earners hit debt trouble
By Matthew Vincent and Sharlene Goff

Published: September 28 2007 20:07 | Last updated: September 28 2007 20:07

More higher-income households are getting into trouble with personal debt, according to debt advisory companies.

Second quarter figures from the Insolvency Service showed a 4.2 per cent annual rise in the number of individual insolvencies through bankruptcy and individual voluntary arrangements and anecdotal evidence suggests these now include borrowers on middle and higher incomes.

Debtmatters, the debt advice group and IVA provider, said it was seeing the first signs of credit problems in wealthier households. “If you look back two to three years, there is a trend to people on higher incomes – doctors, solicitors,” said James Dean, marketing director.

“Demand has increased dramatically but has been held back by the banks’ recent stance on refusing IVAs. We’ve seen that demand across IVAs, debt management plans and calls to charities. So, yes, there’s been an increase, although we’re not saying there’s been a big swing to middle-income earners.”

However, the swing may become more apparent in the next few months, judging by usage of online debt advice forums, such as IVA.co.uk. Andy Davie, site manager, said: “The live forum where people post questions is getting busier and busier all the time and there are now a few posts from quite high earners. More people are coming on board with higher incomes. They ask a lot of questions about their property – how it is affected by an IVA. These people have got a problem.”

For higher earners, an IVA can be preferable to bankruptcy because it provides greater privacy and more control over property ownership. A typical five-year IVA will require homeowners to release equity from their homes to repay debts, but they retain title.

More middle and high-income homeowners are expected to resort to IVAs in the months ahead, as they have greater difficulties servicing their debts.

“Next year, we’re going see more people in these brackets with debt problems,” predicts James Falla, of debt consultancy Thomas Charles. “The middle- to higher-income brackets have seen property prices rise and they’ve pushed themselves to get there. These guys are now coming to the end of fixed-rate mortgage deals. Now they’ll find they’ll only be able to get 6.5 per cent, so we’ll see a trend towards more higher-income people getting into trouble – the trigger will be property.”

More people are also running into difficulties further down the income scale. Many consumer debt groups are reporting sharp increases in inquiries from concerned borrowers in recent months.

Consumer Credit Counselling Service, the debt charity, saw an 18.5 per cent increase in the number of calls it received in the first half of this year. The group typically deals with lower earners who have overstretched their borrowing.

James Ketchell, of CCCS, said: “More people are coming to us looking for help and they are coming earlier.”

Copyright The Financial Times Limited 2007

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