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Low Pay Growth Pushing People Towards IVA Advice

8th May 2012

The Daily Mail website ThisIsMoney.co.uk has today reported on below-inflation pay increases driving households into debt. Apparently the average private sector pay increase in the first quarter of 2012 was just 3%, a figure that fails to keep up with price inflation. Public sector workers have mostly fared even worse than this in recent times. Will low pay growth continue to push families into the need for debt and IVA advice in the coming months?

As we reported in our blog last week, the most recent insolvency statistics produced by the Insolvency Service demonstrate that the need for IVA advice services has been increasing in recent times. Despite a major fall in the number of people becoming bankrupt there had been a significant increase in the uptake of individual voluntary arrangements.

IVA’s (and therefore IVA advice services) are typically used by people in employment, that have a reasonable income, but who can no longer manage to keep fully on top of their debt and household expenditure (without borrowing more). It’s also often used by homeowners to assist in protecting their home in a way that might not have been achievable via bankruptcy.

If IVA numbers are increasing, and bankruptcy numbers are decreasing, it seems safe to assume that many of those on the debt frontline currently are in fact employed homeowners. In short, the need for debt and IVA advice is growing quickest amongst the middle classes.

Hard working middle class homeowners might not fit easily with the perception that many people have regarding the demographic groups around the UK most exposed to the risks of unaffordable debt. However there is some additional logic backing up this position. As lenders have become more risk-averse many people have found it difficult to borrow at all from mainstream credit sources (witness the rise of payday lenders). The same may be less true in terms of middle-class employed homeowners that probably still appear to be a relatively safe lending prospect to banks and credit card providers (and who can therefore still accumulate significant unsecured debt levels).

Low pay increases for the employed will therefore inevitably drive up the need for IVA advice services. This will especially be the case for the huge number of people suffering the double-whammy of their mortgage lender increasing the standard variable rate on their home-loan.

Continued price inflation, low wage growth, increasing mortgage costs, and continued access to mainstream unsecured credit creates a toxic debt cocktail for the middle classes. IVA advice demands are likely to carry on growing until something very significant (and currently unforeseen) occurs.

For more information you may wish to visit our IVA advice forum where experts are available to answer your debt questions every day.


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