Trust deeds news: have household finances hit their lowest ebb?

11th May 2011

Economist Roger Bootle (employed by Accountancy firm Deloitte) has produced grim predictions which have been widely reported in the media and by other trust deeds and debt companies.

Based upon the current economic depression, he predicts that 2011 could become the worst year for household finances since the late 1970s. More worryingly, he predicts that if interest rates were to rise then the rate of deterioration in household finances could be the worst seen since 1952.

The factors driving these predictions include high inflation, which is eating away at our purchasing power, low rates of pay growth, the effects of higher levels of taxation and the high risks of increased joblessness - all catalysts for trust deeds.

The background to these issues, in terms of personal debt, may surprise many people. Average levels of personal unsecured debt have been falling in recent months. Experts suggest that this results from a combination of banks reigning in lending and consumers (perhaps fearful of losing their jobs) choosing to repay their debts (without recourse to trust deeds), rather than spend.

Many individuals appear to have taken sensible steps to avoid the threat of debt management problems which may ultimately result in the need for trust deeds. This is in itself reflected in the reduction of the number of trust deeds becoming protected.

However, such practical measures have their limitations. There is only so far the majority of households are able to reduce their household expenditure and there is often little that people can do to increase their income.

The collective impact of inflation, wage stagnation and increased taxation will inevitably push many more hardworking people to the point where they choose to use credit to pay for essentials such as their mortgage, rent, food or petrol. The requirement to use credit in such circumstances is an acknowledged “red flag” that debt problems may ensue and all too often results in the need for trust deeds.

Another group of people who will be affected are those who have only just been managing to cover the costs of their unsecured debts, on the verge of needing a debt solution such as trust deeds to help them make their payments. The collective effect of the factors mentioned will, for many people, render their situation unsustainable in the long-term.

Many insolvency practitioners, including the professionals who act as Trustee when individuals set up protected trust deeds, remember previous economic cycles which showed similar characteristics. Some talk about being especially busy when a recession starts to take hold, followed by an unexpected lull before conditions improve, which precedes a very busy period when the economic recovery begins.

There appears to be some evidence that this pattern may hold true again. We’ve had the big recession and there are plenty of signs that some sort of recovery may be beginning. However, this potential recovery will not be ‘real’ for many households who are being financially squeezed like never before. Sadly it would appear that the aftermath of 2011 could see trust deeds numbers on the rise despite the worst being over for the general economy.

For further trust deeds information or advice the Trust Deed Forum offers the perfect resource. We have posts from members of the public and trust deeds experts alike, so whatever your situation we can offer you the support you need.

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