UK facing serious credit issue in 2008

The UK in many ways is more like the US than Europe, with credit being one major similarity. In France, house/flat loans generally require 30%-40% cash upfront and then terms of 10-12 years, with 15 or more years much less common. Credit cards to anyone breathing just doesn't exist. Compare that to the UK which has been high flying for years with an easy credit model closer to what we have in the US. The UK economy has been booming compared to Euroland though so has spending on credit. 2008 may be the year that changes.
More on the credit issues facing the UK after the jump.

The latest figures indicate that 23 per cent of people – 9.5 million adults – were finding their current level of debt "unmanageable". Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.

Tomorrow, Grant Thornton will forecast that 10,000 individuals will hit the financial wall each month in 2008, with 28,000 individuals sliding into insolvency in the first quarter. As many as one third of bankruptcies in the first three months of the year will be caused by "excessive Christmas spending".

Mike Gerrard, the head of Grant Thornton's personal insolvency practice, said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells. Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."

Mike Naylor, a personal finance expert at uSwitch.com, remarked: "People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over." He said those with a poor credit record would experience a particularly tough time.

In a survey last month, the Bank of England found that more than one fifth of those whose mortgage deals had come to an end last year struggled to meet higher payments.

Experts predict a rise in Individual Voluntary Agreements (IVAs), a less stringent form of bankruptcy, because banks are once again accepting them after quibbling with their terms last year. Bankruptcies are also expected to be more readily accepted by individuals because they have become so commonplace and so their stigma has fallen.