Warning over home-owner bankruptcies

JOHN WILLCOCK

Receivers warn today that the rising level of house repossessions may lead to more home-owners being forced into bankruptcy.

The report by the Society of Practitioners of Insolvency (SPI) also shows that the Inland Revenue and Customs and Excise only cause one per cent of small businessmen to go bust.

The survey, which covers insolvencies in the calendar year 1994, reveals that individual bankruptcies due to excessive mortgages fell from 10 per cent of all insolvencies in 1991/92 to just five per cent in 1994. During the same period repossessions fell by 35 per cent, according to the Council of Mortgage Lenders.

But the recent four per cent increase in repossessions may mean that many homeowners, already suffering with negative equity, could face added problems: as house prices remain low and lenders get tough with borrowers.

The SPI warns that even if the housing market does pick up, homeowners may be caught in a 'Catch 22'. Mortgage lenders may be even more inclined to crack down on borrowers as the house becomes increasingly valuable - and therefore worth reclaiming.

The SPI survey also shows that small businessmen are the most common victims of personal bankruptcy. The self-employed, partners and sole traders account for 79 per cent of the personal insolvencies reported by SPI members.

Almost half of sole traders who went bust did so "because of their lack of business skills". This figure includes lack of working capital and cash flow which the SPI considers a symptom of management weakness.

Loss of long-term finance, usually involving a bank calling in its loans, has, however, continued to decline as a reason for failures. It is now down to one per cent from three per cent in the last survey and 28 per cent at the peak of the recession in 1992. The SPI claims this shows that few businessmen can blame their banks for their failure to succeed in business.

Colin Bird, SPI president, commented: "Nearly half of small business people go bust as a result of management failure. Many of these could be prevented if they had had the benefit of some business education."