Español (ESP)Recession hits individuals hard, as personal wealth falls
Strain on household income leaves consumers on a tighter budget with less to put towards debt repayments
During the period, unemployment rocketed to 7%. This put an increased strain on consumers who, as highlighted in the last index, had already ‘tightened their belts’ in response to the economic environment. In this quarter, many found their already strained finances became unmanageable. The rise in unemployment was accompanied by mortgage repossessions reaching their highest half annual rate since the index began, with 23,200 properties being taken into possession. Similarly, bankruptcies reached unprecedented heights, standing at 20,446 for the quarter.
Not surprisingly, the household savings ratio, which had previously improved, fell by around a third from 4.8% to 3% as consumers were less able to put money aside. This counteracted previous increases driven by slower consumer spending.
Mark Onyett, Chief Executive of TDX Group said: “The real pain of the recession is really starting to hit individuals hard. Many just do not have the flexibility in their financial circumstances to continue to weather this storm and are going delinquent on a much tighter budget. This leaves creditors chasing after not only more individuals in debt, but also more individuals who have less prospect of paying their debts. Through growing unemployment over the last year, consumers have had over £2 billion less available to go towards debt repayments.”
Reflecting this situation, the TDX Group Debt Index shows that overall conditions for debt collection worsened in the last quarter, showing an overall movement of 5% into a more difficult environment since the first quarter index. The key driver of this fall was the Wealth Indicators, which worsened by 18% - signalling that as the recession continues, many individuals now have few options available when they are struggling to make debt payments.
* Based on data trends through the end of Q1 2009
About The Debt Index
The Debt Index has been developed by TDX Group to represent the impact of current macroeconomic and credit sector factors on creditors’ efforts to collect on their outstanding balances. The index is based on 2002 = 100 and has been calibrated such that a rise in the index value represents worsening conditions from a creditor’s perspective. The index comprises of a number of macroeconomic variables and industry performance measures which are weighted based on their predicted impact. Each variable is assigned to one of three categories, with each category representing an underlying cause for a worsening debt market:
- Debt Burden Indicators: This category contains factors that indicate the overall levels of personal debt and the difficulty that a typical household will be experiencing meeting those debt commitments.
- Delinquent Indicators: This category contains factors that indicate levels of adverse behaviour within the debtor population and the population as a whole, such as insolvencies and unemployment.
- Wealth Indicators: This category contains factors that indicate the overall wealth level of the UK population and due to the nature of the index, an increase in relative wealth causes a decrease in this category’s contribution to the index.
