Personal insolvency rate to soar in Q4 2020 – TDX Group comments

David Heathcote, personal insolvency expert at TDX Group, an Equifax company, comments on the latest UK personal insolvency market trends, predicting a steep rise in Q4 and into 2021 despite a period of reduction over lockdown:

The volume of individual voluntary arrangements (IVAs) and trust deeds decreased significantly in Q2, down by 39% from Q1 and 38% year-on-year*. Unfortunately, this trend is mainly due to the temporary relief of forbearance, and a truer picture will emerge with an expected steep rise in personal insolvencies towards the end of the year.

The financial shock of COVID-19 means the UK economy is heading for a sharp recession, with an estimated 10% contraction this year**. The government furlough scheme and support measures such as emergency payment freezes, though much needed, are masking the true landscape of deteriorating personal finances, and may create a bottleneck in personal insolvencies in Q4.

Workers from industries badly affected, such as retail, leisure and tourism who would normally be eligible for an IVA are being advised to hold fire for full visibility on their job security. During this period of financial uncertainty, it’s difficult for people to commit to fulfil the full payment obligation term for an IVA, which is often five years.    

As furlough and self-employment schemes, as well as payment freezes on mortgages, credit cards and utilities end in Q4, the UK will face another surge of consumers entering financial difficulties. New personal insolvency volumes could rise rapidly, a trend that will likely persist into 2021. In this environment, insolvency companies must prepare for extra capacity and ensure they treat consumers with compassion and flexibility, and use relevant data to find fair outcomes for those in financial difficulty.

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