This is according to figures released by IVA experts at Grant Thornton in advance of the Government’s official insolvency statistics.
Mark Allen, Head of IVAs at Grant Thornton, believes the overall number of people seeking help for their financial problems will spiral in 2009 as property owners find themselves unable to pay off their debts with equity and seek an arrangement with their creditors in a bid to save their homes.
"These figures give a bleak indication of the number of homeowners who are now defaulting on their mortgage repayments. We’re seeing growing numbers of better-off people contacting us about IVAs. These individuals with debt have always existed but they are now becoming the majority of people approaching us for help. The ‘middle class IVA’ is becoming increasingly common," he said.
"During the boom years, many homeowners remortgaged and used the equity in their properties to meet their debts, avoiding either bankruptcy or an IVA. With house prices falling and banks tightening their lending criteria, that option has now gone.
"The credit crunch has proved a double whammy for homeowners who have been consolidating their debts by topping up their mortgages. The practice is now more difficult and those with high levels of personal debt either have insufficient equity or negative equity and no chance of raising additional money.
“Last year creditors had to write off at least £1.1billion in bad debts as a large number of people entered into IVAs. The average IVA debtor owed in excess of £20,000 with many with over £50,000 and proposed to repay only 38% of this sum. The figures will undoubtedly be much greater next year.”
Allen added: "IVAs were historically used by people failing to cope with repayments on personal loans and other forms of unsecured debt to fund reasonably small levels of expenditure such as household improvements."
He advises anyone experiencing difficulty with repayments to communicate with their creditors or seek good impartial advice.
"It is essential to hold an open dialogue about the wide variety of solutions at the earliest possible stage."
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