UK Personal finances are in a critical state.

4th February 2019.

There are many signs in the news showing UK Personal finances are in a critical state.

1. Personal insolvencies hit seven-year high

The crisis of UK Personal finances is most evident in the insolvencies.

Amid a backdrop of tightening consumer credit and stagnating wages, the number of people in England and Wales turning to insolvency has reached a seven-year high.

The number of people who became insolvent in England and Wales in 2018 was 115,299, a 16.2% rise from 2017, and there were 71,034 individual voluntary arrangements (IVAs), an increase of 19.9% on 2017 and the highest level ever recorded. Stuart Frith, president of insolvency and restructuring trade body R3, said: “As banks and other lenders have tightened their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, many people have run out of road,”

While Brian Johnson, a partner at H W Fisher & Company, predicted that a rise in interest rates could lead to a further spike in individual insolvencies, adding: “The rise in CVAs likely to have been driven by the retail sector last year, which faced a perfect storm of reduced consumer spending, internet shopping, an interest rates rise and minimum wage increase.”

This 16% year on year increase, is the third consecutive annual increase and the highest level since 2011. The number of individual voluntary arrangements was up by almost 20%, meaning around one in 400 adults were declared insolvent in 2018.

2. Parents passing on bad money habits

UK Personal finances also have an education issue.

A survey of 1,000 primary school parents carried out by financial education charity RedStart has revealed that 19% of parents do not save for a rainy day, and 18% say they “overspend”.

A further 13% say they do not have the right knowledge to educate their children about money, while 26% believe schools should be promoting more financial education.

3. Credit card usage squeezed over Christmas

UK Personal finances are evidently squeezed.

Consumer borrowing increased at its slowest rate for four years during 2018 with the rate of growth falling to 6.4% in December, down from 7.2% the previous month. The Bank of England statistics show consumers borrowed just £100m on credit cards in the final month of 2018, as UK shoppers tightened their belts and rebuilt their savings. This was the lowest monthly total since September 2014.

“The ongoing slowdown in net unsecured consumer credit growth to a four-year low in December reinforces belief that heightened uncertainties focused on Brexit are likely to weigh down on the economy in the near term at least,” said Howard Archer of the EY Item Club. Separately, the latest Deloitte Consumer Tracker found that a period of falling inflation, a rise in real wages and unemployment at historic lows, was not enough to offset consumer uncertainty surrounding Brexit.

4.House price growth at near six-year low

UK Personal finances are inextricably linked to house prices.

UK house prices grew at the slowest annual rate for nearly six years in January, according to the Nationwide, with prices up by just 0.1% from a year earlier, and down from a rate of 0.5% in December.

However, month on month prices grew 0.3% at the start of 2019 compared to a 0.7% slip between November and December.

The average property price is now £211,966, just £210 more than a year ago.

Howard Archer, chief economic adviser to the EY ITEM Club, said that a no-deal Brexit would see house prices slump a further 5% in 2019. Conversely, if a deal is agreed by March, prices could rise by 2%, Mr Archer said.

5. Despite 4. House price affordability poorest since 2007

UK personal fiances however can’t keep up with house prices.

House prices in UK cities are outpacing wage growth by 11%, according to Lloyds Bank, which found that the ratio of average prices across 62 cities to average city earnings has reached 7.2, the highest level since 2007.

The new report reveals that the average house price has risen over 37% from 2013 to its highest ever level of £248,233 in 2018. At the same time, annual earnings have only risen by 11% to £34,366.

6. Millennials pay scarred by financial crisis

The UK personal finances of our youngest workers are most stretched.

New research from the Resolution Foundation has suggested that pay for workers in their 30s is still 7% below the level at which it peaked before the 2008 financial crisis.

The think-tank said people who were in their 20s at the height of the recession a decade ago were worst hit by the pay squeeze.

The research found those who stayed in the same job in 2018 had real wage growth of 0.5%, whereas those who found a different employer saw an average increase of 4.5%.

How CPA can help

Do you sell to consumers? If so the above will be worrying.

Do you sell to businesses which in turn sell to consumers?  If so you might think you are insulated but if your customers struggle to get paid then do you think they might consider using your unpaid invoices as a way to stretch their cash flow and delay their payments?

In this stressful times, you can’t afford to let your overdue accounts drift. You need to take action quickly to recover  what you are owed. You can be sure your customers other creditors will be chasing money too so you don’t want to be left behind.

With the economic conditions changing fast and companies disappearing you need to regularly check your customers too to make sure they are still financially stable and credit worthy. Just because they could afford your invoices last year is no guarantee that they can afford you this year. So credit check your customers and continue to trade with confidence.

No matter who you supply to, you need to be on top of your credit management.

In these difficult times, you need strong partners.

The Credit Protection Association has been serving small businesses for over 100 years.  CPA have collected billions on late paid invoices for our members and helped take the strain off business owners during difficult times.

At the Credit Protection Association,we provide a suite of credit management services to help you avoid and deal with late payers.

We provide first class credit information that can help you avoid being over extended to customers who are at risk.

We regularly publish lists of the latest company insolvencies but by then it is too late.  Our credit reports predict approximately 96% of company insolvencies long before they arrive.

Our debt recovery services also chase down late payers, resolving over 80% of debts referred, recovering  money that our members can then put to work within their own businesses.

Our members have used this boost to their cash flow to fund investment in new projects, additional materials, new staff, extra equipment or new technology.

At the same time, our credit checks and credit reports are utilised by our members to investigate all suppliers and customers. It is important to keep an eye on your key business partners – Suppliers and Customers – to ensure their are on a firm financial footing.

Our reports help avoid bad payers or being over extended to a customer beyond their means.

We come across business owners who have been burnt before working or providing goods on credit because the hassles were not worth it.

Our services have helped them go  back in to trading on credit with confidence

Our debt recovery and credit management services give our members the financial freedom needed to grow and prosper.

And our new Late Payment Compensation department could unlock hidden potential in your accounting records and uncover the hidden compensation you are owed by past customers that could be used to give your business the cash flow injection it needs.

Give us a call to find out how we can help.

James Salmon, Operations Director, 4th February 2019

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The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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