A RISE in corporate insolvencies will plunge more households into financial difficulty, according to forecasts by Leeds University Business School.
The school's Credit Management Research Centre says growth in household debt continues to cause concern and, as the economic climate changes, servicing debt will become more problematic for a larger proportion of UK households – particularly as mortg
age repayments rise and the opportunities for refinancing and restructuring current debt decline with the tightening of lender credit policies.
A forecasting model developed by the Credit Management Research Centre (CMRC) to analyse corporate indebtedness and other risk indicators suggests there will be a sharp increase in corporate and small business financial distress and insolvency in 2008 and 2009.
The business school's Professor Nick Wilson said: "It is often small firms that bear the brunt of tighter lending policies as they have to rely on extended trade credit to finance daily activities.
Scores
"Our survey also predicts that corporate insolvencies could rise by over 20 per cent to around 18,000 per year in 2008-09, while late payment of commercial debt appears to be on the increase."
In relation to lending policy, he said: "Risk assessment at the point that the customer applies for credit has historically utilised credit scores that rely on information regarding the applicant's past performance on credit accounts.
"New scoring systems that factor in a more complete picture of the customer's indebtedness in relation to current and potential income flows, along with features reflecting the impact of interest rate changes and the economic cycle, will undoubtedly lead to a reclassification of portfolio risks."
Other key findings:
Since 2003, repossession activity by debt collection agencies has increased 25 per cent.
The growth in household debt, both in absolute terms and relative to household income, continues to cause some concern.
By the first quarter of 2008 the level of outstanding debt was £1.4 trillion.
Households now owe sums equivalent to 160 per cent of disposable income
The report uggests that households are now spending 30 per cent of their income servicing debt.
The full article contains 348 words and appears in EP Leeds First & County newspaper.
