THE number of people whose homes were repossessed last year rose by 21 per cent, but repossessions are just one indication of the UK’s deepening debt crisis.

The scale of individual debt, both through mortgages and other debts such as credit cards and personal loans, has increased sharply over the last ten years. By the end of December 2007, total lending to individuals reached £1,409 billion, figures from the Bank of England show.

Of this £1,409 billion, £1,185 billion was mortgage lending with the remainder £224 billion consisting of consumer credit including credit cards.

This compares to the £419 billion of secured debt and £84 billion unsecured in May 1997.

This mountain of debt is taking its toll with Britons defaulting on unprecedented amount of loans. More than one million have fallen behind on interest payments, according to the Financial Services Authority, and another two million are “continually struggling”.

The debt advice firm Debt Free Direct estimates that between one and two million households are “permanently indebted” — meaning that while managing to juggle their debts and meet minimum interest payments, they will never repay the principal.

In 2006, it is estimated that UK banks wrote off an unprecedented £6.6 billion of loans to personal customers. That is 20 per cent higher than in 2005, which itself was 50 per cent higher than 2004.

The latest statistics from the Insolvency Service on bankruptcies and individual voluntary arrangements - private agreements between debtors and creditors that allow borrowers to avoid bankruptcy - show a quarterly fall in the number of individual insolvencies, though some experts fear this is just a blip in a longer term rising trend.

There were 24,846 individual insolvencies in England and Wales in the fourth quarter of 2007, a decrease of 3.9 per cent on the previous quarter and a decrease of 16.4 per cent on the same period a year ago.

While IVAs at 42,165 were 4.9 per cent lower than in 2006 when they stood at 44,332, bankruptcy orders, at 64,480 were 2.4 per cent higher than in 2006, when the figure was 62,956.

Mike Gerrard, head of personal insolvency at Grant Thornton, says: "Take no heart from this quarter's drop in personal insolvencies, they are merely the tip of the iceberg. From here on in it's going to be a rough ride for many individuals and the numbers going insolvent will rise."

Mr Gerrard believes insolvencies will rise as the credit crunch, slowing consumer confidence and the lagging effects of past interest rate rises finally begin to feed into the statistics.

Despite this gloomy outlook, there are some signs consumers are beginning to adapt their spending behaviour in response to today’s tougher conditions.

Latest figures from APACS show that although spending on plastic over Christmas was £32.2 billion, and that this is up four per cent on Christmas 2006, the 2007 figure marks the slowest year on year increase in spending over the same period for four years.