U.K. Bankruptcies Down as Banks Deny More Card Applicants
November 08 2007
By Burney Simpson, insideARM.com
Do fewer credit cards mean fewer bankruptcies? An analysis of the results of a recent survey and a separate study out the United Kingdom suggests just that, though the two were done independently of each other.
The research and consulting firm Grant Thornton reported last week that personal insolvencies, or bankruptcies, in the U.K. fell in the third quarter to 26,072, down 3 percent from the previous quarter and down 5 percent from the third quarter of 2006. Meanwhile, credit card companies turned down nearly 3.3 million consumer applicants in the U.K. in the past six months, according to an analysis MoneyExpert.com of a recent survey.
Credit card application rejections were up 22 per cent in the last six months compared to the six months to March 2007, when around 2.7 million credit card applications were turned down, according to the independent financial comparison Website. MoneyExpert.com reported that many firms are tightening rules on new applications due to a rising number of cardholders unable to pay their card bills in addition to the continuing credit crunch.
"Credit card companies have had a rough ride with bad debt so it's no surprise that they are becoming stricter on who they'll lend money to,” Sean Gardner, CEO of MoneyExpert.com, said in a statement. "And with so many of us feeling the pinch following five interest rate rises since summer last year, credit is undoubtedly harder to come by than it has been for a long time.”
The rejection total in the last six months represents more than 9 percent of the population of the U.K. The most likely group to be turned down is those between 25 and 34, with 15 percent of applications rejected. MoneyExpert compared results from an online survey of 1,009 GB adults conducted between October 2nd and October 4th, 2007, and a similar survey conducted between the 21st and 23rd of March 2007.
Despite the drop in bankruptcy filings, Grant Thornton predicts a coming storm of bad news after years of U.K. consumers taking on ever higher levels of debt. In September, Grant Thornton found that the total amount of U.K. personal debt had exceeded the U.K. gross domestic product for the first time ever, indicative of the U.K.'s well established 'buy now pay later' culture, according to Mike Gerrard, head of personal insolvency at Grant Thornton.
"We are seeing an increasing number of individuals turning to their credit cards to make mortgage payments. Using credit to pay off credit is a precarious balancing act performed on the thinnest of wires, and it only takes some missed payments and a switch from a fixed to variable mortgage interest rate to send these individuals into a downward spiral," said Gerrard in a statement.