Big increase in number of Scots homeowners going bankrupt

Almost half the debtors taking out protected trust deeds (PTDs) last year with accountant and business adviser PKF were homeowners, according to analysis published today.

PTDs are informal bankruptcy arrangements with fewer restrictions than sequestration, and homeowners now account for 47 per cent of them taken out in Scotland, up from 33 per cent in 2008, says PKF.

The average Scot taking out a PTD is 42, with debts of 42,380. The average male taking out a PTD is now 10,000 deeper in debt than in 2008, although women account for more than half of those being made bankrupt.

Bryan Jackson, corporate recovery partner at PKF, described the figures as "deeply concerning" and evidence that debt levels in Scotland would continue to increase, particularly among homeowners.

"I think many will be surprised that it is the middle aged who continue to be, by far, the largest group affected by personal insolvency, since there is an assumption the young are the most likely to get into debt," he said.

"Our figures indicate that it is the young who are being more cautious, with fewer falling into bankruptcy than before."

Jackson pointed out that homeowners previously able to use the rising equity in their property to facilitate their spending could no longer do so. "This is probably the group who, during the housing boom, used rising equity in their homes to fund their lifestyles, and now that this source of revenue has dried up, they find themselves with limited equity and rising costs and are unable to cope," he said.

His view was supported by new figures from the Council of Mortgage Lenders, which show that remortgaging accounted for just 31 per cent of lending in November, compared with 53 per cent a year ago.

PKF has estimated that some 24,000 Scots will be made bankrupt this year, roughly the same level as in 2009 but almost double the number of bankruptcies in 2007 and far higher than comparable numbers for England and Wales.

The rise in the number of Scots going bust has been partly fuelled by the April 2008 introduction of the Low Income, Low Asset (Lila) rules, making it easier for people to declare themselves bankrupt.

But with unemployment predicted to creep up and affordable credit still in short supply for many borrowers, PKF's Jackson warned that Scotland's personal debt crisis would deepen further.

"With Scots insolvency running at double the rate for the rest of the UK, it is clear that we need to encourage fewer individuals into bankruptcy and ensure greater financial awareness among the population," he said.

Official insolvency figures covering the last three months of 2009 are expected to be published by the Accountant in Bankruptcy next week.